9 July 2014 : Column GC99

9 July 2014 : Column GC99

Grand Committee

Wednesday, 9 July 2014.

Arrangement of Business


3.58 pm

The Deputy Chairman of Committees (Baroness Harris of Richmond) (LD): My Lords, if there is a Division in the House the Committee will adjourn for 10 minutes.

Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014

Motion to Consider

3.58 pm

Moved by Lord Bates

That the Grand Committee do consider the Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014.

Relevant document: 3rd Report from the Joint Committee on Statutory Instruments

Lord Bates (Con): My Lords, I am satisfied that these regulations are compatible with the European Convention on Human Rights. They make consequential and supplementary changes to primary legislation to support the clarified definition of money purchase benefits in Section 29 of the Pensions Act 2011.

A further, and more detailed set of regulations, The Pensions Act 2011 (Transitional, Consequential and Supplementary Provisions) Regulations 2014, deal with consequent changes to secondary legislation. These were laid before Parliament on 3 July 2014. Both sets of regulations will come into force at the same time as the clarified definition in Section 29 of the Pensions Act 2011.

The clarified definition of money purchase benefits will ensure that only benefits which cannot develop a deficit in funding can be money purchase benefits. Noble Lords may be familiar with the decision of the Supreme Court in 2011, in the case of Houldsworth and another v Bridge Trustees Ltd, that certain benefits which could develop funding deficits or surpluses could still fall within the definition of money purchase benefits.

While this decision concerned two specific types of benefit structure found in a particular scheme, it created widespread uncertainty in the pensions industry. That was because the decision could also be interpreted as covering other types of benefits and place these outside the protection of the regulatory framework for benefits that are not money purchase, even though they had the potential to develop funding deficits.

Section 29 of the Pension Act 2011, which has retrospective effect, and the supporting regulations remove that uncertainty. Where in the past decisions

9 July 2014 : Column GC100

have been made by schemes that are in keeping with the clarified definition, the retrospective effect of Section 29 will ensure they remain valid, despite the fact that those decisions may be incompatible with the Supreme Court’s judgment. Where decisions have been made that are inconsistent with the clarified definition there is transitional provision in the regulations so that schemes will not need to unpick past decisions. Going forward, however, it is important that the trustees and managers of schemes know what action they need to take in respect of benefits they have previously treated as money purchase, but which do not meet the clarified definition. That will ensure that their members are protected.

In particular, these regulations amend Section 84 of the Pension Schemes Act 1993 to provide an alternative method for trustees or managers to revalue certain types of benefits known as cash balance benefits. The cash balance method allows the sum available for a cash balance benefit for a deferred member to be revalued by any method that is applied to the benefits of active members where it cannot be calculated by reference to the salary.

The regulations also include decisions made by the board of the Pension Protection Fund that relate to benefits affected by the clarified definition as matters that are reviewable under Schedule 9 to the Pensions Act 2004. That will ensure that during the transitional period, where the board has exercised discretion as to whether to treat benefits as money purchase benefits, that decision can be challenged and subject to a formal review process.

The Government have worked closely with the pensions industry to identify the type and number of schemes that will be affected by the clarified definition of money purchase benefits. The majority of schemes will be hybrid schemes—that is, they will contain a mixture of money purchase and non-money purchase benefits. Hybrid schemes make up about 2% of the estimated 40,000 private occupational schemes in the UK which include money purchase benefits—that is, approximately 800 schemes.

I commend the Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014 to the Grand Committee and ask its approval to implement them.

Lord Kirkwood of Kirkhope (LD): My Lords, I am pleased to have the opportunity to contribute to this technical debate. I declare an interest as chairman of the defined benefit superannuation scheme of the General Medical Council, so unfortunately I know nothing about money purchase schemes. I did try, honestly—I took home the 36-page judgment of the noble and learned Lord, Lord Walker, and read it carefully until Germany scored the second goal. I still do not understand the noble and learned Lord’s reasoning, but I am sure that it is sound.

I hope that the Minister can help me. I understand that we are dealing with two sets of statutory instruments. The department deserves credit for taking on board the suggestion made by the Secondary Legislation Scrutiny Committee of teasing out the negative from the affirmative. That is always good practice. However,

9 July 2014 : Column GC101

I do not know where the transitional regulation, Regulation 1711, comes from. I assumed that it would have been sensible to have taken these together because they talk about the same thing and are all part of a piece. However, I may have missed something and the Minister might be able to put me right on the procedure that is involved.

This is a small but important issue and anyone who looks at it will be reminded of the ineffable complexity of our pensions system. I have to say that although this is the right thing to do and I am content with the regulations, they form another layer of complexity—because they have to. If money purchase is not defined in this way, it would leave a terrible amount of uncertainty. If people do not understand a valid, watertight description of money purchase, chaos will ensue. Lots of schemes could get into even greater difficulties in the future.

We always have to be careful about retrospective provision. These regulations go back to 1 January 1997. I understand perfectly why and, in the circumstances, that is justified, but, as I say, we must always be careful about retrospective provision. However, I think this is the right tactic. It is not perfect because retrospection never is, but the stated case is accepted, certainly as far as I am concerned. Clarity is the order of the day, as much as we can achieve it in pension provision.

I have a couple of questions for the Minister. Some of these things are imponderable because the data are not available in money purchase schemes to the same extent as in defined benefit schemes, but the number of affected schemes has been listed as being around 800. Is there an update on that figure and is there now a better definition? Has the number gone up or down since these matters started to be drawn up by the department? I also want to try to understand what the costs of non-compliance would amount to. What is the worst that could happen? If everything that can go wrong does go wrong, what would happen to hybrid schemes such as these which involve money purchase in a way that we have to change through these regulations?

As the chairman of a superannuation scheme myself, the key and overriding priority of a trustee is to protect the members’ benefits. Are there any circumstances where benefits afforded to members could be prejudiced by these changes? I have looked at the very helpful Explanatory Memorandum. Paragraph 19 explains the provisions of,

“transitional measures to assist affected schemes in three ways”.

The first bullet point talks about,

“retrospective protection so that schemes do not have to revisit past decisions”,

and goes on to conclude that,

“there is very likely to be no detrimental material impact on member benefits”.

That is a nuanced subordinate clause, and perhaps it has to be so. I would rather have the truth than be given a more definitive statement that was easier to understand and more reassuring. However, that is a key question for me. If I could be given some reassurance on that point, I would be even happier than I am at the moment.

9 July 2014 : Column GC102

Finally, I think that the consultation was exemplary. I looked at the document very carefully and the department did everything it could. The consultation was responded to well and those who did respond are experts who know the exact consequences of these changes. For me, that has lifted a great deal of concern and apprehension about the effects of these changes. These regulations reflect circumstances that no one could have foreseen and the Government have responded to them in the best way they can. The situation is still a bit fuzzy at the edges, but I hope that the Minister will give us an assurance that the appropriate officials who understand these things will monitor the position so that we can be assured in the fullness of time that the assumptions we are making of very little or no loss of benefit to individual members are found to be what happens in practice in the future.

Baroness Drake (Lab): My Lords, I declare my interests as a trustee of both the Santander and Telefónica pension schemes.

This statutory instrument has been on a rather interesting journey. In part it supersedes draft regulations published in May, which were withdrawn and subsequently divided into two in order to separate provisions required to go through affirmative procedure from those required to go through negative procedure. It has therefore been a little confusing to try to anticipate the affirmative provisions to be relaid in the form of a pared-down instrument, as this SI was not laid until last Thursday. Having said that, I appreciate that dealing with the uncertainties and complexities that flow from the Supreme Court decision in Bridge cannot have been straightforward for the Government. I compliment the drafters of the Explanatory Memoranda and the impact assessment, who tried to provide clarity as to what the Government intend and why, in what to most normal people would seem a rather dense and complex set of requirements.

The two regulations have separate Explanatory Memoranda, but they share a common impact assessment, so one can assume that certain key assumptions and conclusions underpin both orders. I refer in particular to the fact that, having considered the consultation responses, the department has changed its policy on retrospection for non-compliant schemes. Decisions taken by schemes between 1 January 1997 and the coming into force of Section 29 will be validated, except in two limited circumstances that relate to winding up and employer debt, where there is a risk to members’ benefits.

The department has been persuaded that it would therefore be unduly burdensome to require schemes to revisit past decisions, which could give rise to expensive administrative costs that could deplete scheme assets and therefore the ability to fund members’ benefits—that is the argument put by the Government—and that the impact of members’ benefits of revisiting past decisions since July 2011 would be negligible. In summary, the Government are persuaded that with two exceptions, Section 29 will come into force only with prospective effect; there will be retrospective protection for schemes and past decisions will be validated.

However, in coming to that view and giving that retrospective protection to decisions made, the department is unable to quantify the impact of the regulations on

9 July 2014 : Column GC103

schemes likely to be affected. There are no data available at an industry-wide level. The consultation did not elicit sufficient data at scheme level to allow the department to produce reliable estimates of the impacts on schemes and on members—and indeed, on employers. The department engaged further through the pensions regulator’s annual survey and the wider pensions industry to enable some quantification of costs and benefit. However, insufficient information was forthcoming.

A question must be, therefore: are the Government right to be persuaded, and indeed confident, that except in the defined limited circumstances that they have identified, there is negligible risk to members’ benefits in validating decisions taken by schemes before the coming into force of Section 29? Should there be more exceptions to the retrospective validation? How do the Government give themselves the level of confidence they need to give that retrospective validation? I will illustrate my concern with reference to a couple of examples.

The very important rules which govern any attempts to change pension rights or entitlements are detailed in Section 67 of the Pensions Act 1995, popularly referred to as “Section 67 rights”—an often quoted phrase because of its protected nature. During the course of the consultation on the regulations arising from the Pensions Act 2011, stakeholders advised the department that there could be schemes which had inadvertently changed their benefits from non-money purchase to money purchase; for example, by removing a guarantee from a cash balance scheme because of their interpretation of the law in force at the time. In doing so they may not have secured the members’ consent as is required.

The department has taken the view that schemes should not be required to revisit these decisions and that it would deem that the requirements of Section 67 of the Pensions Act 1995 had been satisfied where the actuarial equivalence requirements were met before such a scheme modification took effect. But those actuarial equivalence assumptions may not hold good over the longer term, and the issue remains that a guarantee or some other right has been removed without consent. The Section 67 requirements have not been met and the beneficiaries may be worse off.

4.15 pm

We have little information on these breaches and yet the regulations amend the requirements of Section 67 of the Pensions Act 1995. Traditionally, Governments, including this one, have been reluctant to override Section 67 rights—for good reasons—but appear to be doing it in this instance. Does the Minister not agree that this could be seen as a worrying precedent, particularly by those who are concerned that members’ Section 67 rights are not tampered with, prejudiced or undermined?

Another example arises from the regulations modifying the retrospective application of winding-up legislation to schemes that have made decisions on a basis incompatible with Section 29, which gives the definition of the distinction between money purchase and non-money purchase, such that wind-ups that commence before the coming into force date are not

9 July 2014 : Column GC104

required to be reopened unless the winding-up is under way at commencement in limited, prescribed circumstances.

The impact assessment refers to non-money purchase members who have taken early retirement as a class of member that could benefit from requiring schemes to revisit past winding-up decisions, but then adds:

“Even these members could only benefit where the amount of money available increases to a level above the Pension Protection Fund minimum, but below their full entitlement”.

The impact assessment is in effect saying that because the revisiting of a wind-up decision would increase such members’ benefits only to a level above the PPF level of compensation and not back to their full entitlement, that in itself is an acceptable reason for wind-up decisions not to be revisited. I ask the Minister: is taking such a subjective view of the value of the lost benefit an acceptable premise for giving retrospective protection to schemes?

Turning to the exact content of the order before us today, it is clearly understandable why it should not apply to the Imperial Home Decor pension scheme. It is also understandable why the list of matters relating to decisions made by the PPF that are subject to review should be extended to include directions made about whether any benefits affected by the Section 29 definition should be treated as money purchase benefits for the transitional period.

On that point, some DC schemes will have to totally “flip”—a word I have borrowed from the department—to being DB schemes that cannot qualify for access to the PPF before 1 April 2015 and whose members will not be covered by a protection regime during this period. This could, I assume, put the Government in breach of their obligations under Article 8 of the European Union’s relevant insolvency directive. I ask the Minister: if the employer supporting such a flipping scheme were to become insolvent between July 2014 and April 2015, what action would the Government take to protect those members in line with their obligations under the relevant directive?

Finally, on the matter of cash-balance benefits, which are non-money purchase benefits based on a promise in relation to a pot of money accumulated, the requirement to revalue the benefit for members who have left the scheme is in line with the annual revaluation order and can be complex—as was that sentence, try as I did to make it less complex. Basically, there was an entitlement to have benefits revalued in line with a certain order, and I accept that that requirement can be complex.

I agree that it seems sensible for the Government to provide clarity in the regulations to allow for a cash-balance method of revaluation based on a more simple formula, for which the order makes provision —in effect, a flat-rate formula that provides for active and deferred members to be treated in the same way. However, I remain concerned on this retrospective point. There are schemes which have had revalued deferred benefits in a way which is incompatible with the Section 29 definition. Some members may consequently receive lower-value benefits. I accept that it may be possible that some receive higher-value benefits as a result. However, this is another instance

9 July 2014 : Column GC105

where retrospection protection is given to revaluations which have not been compatible with the Section 29 definition.

I understand the complexities, and trying to construct this speech so that it did not sound too complex was a challenge in itself. I remain concerned at how the Government accord themselves a level of confidence at which they can say that, in giving this retrospective protection, the disregard on members’ benefits is negligible.

Baroness Turner of Camden (Lab): My Lords, my noble friend Lady Drake has made an exhaustive study of this complicated matter. I certainly do not have her kind of in-depth understanding. I came this afternoon because I am interested in what happens to members of DB schemes who have been concerned that the various changes would threaten the safety of their benefits.

As we have heard this afternoon, there have been quite heavy assurances from the Government that the protection of members is paramount to them; that is of course important. We have already heard that there have been assurances on retrospection. The changeover in some schemes from non-money purchase into money purchase can give rise to uncertainty and a lack of assurance among the people receiving it. I am therefore interested to hear what the Minister has to say in response to my noble friend, who has raised these points sharply and with great clarity. It is necessary when you are making adjustments in pension benefits in whatever area to make sure that people who are on the receiving end are confident that what they have been paying for and supporting all their lives will be safe. That is terribly important.

We understand that the Government have given assurance both in relation to protection under the ECHR, which is important, and to general protection as well as protection of some means of challenging if people feel concerned and are not happy about what is happening. I await with interest what the Minister has to say in response to the issues which have been raised, which are very pertinent in the circumstances.

Baroness Sherlock (Lab): My Lords, I thank the Minister for his introduction to these regulations and for explaining how we got to this place, the noble Lord, Lord Kirkwood, for some very good questions, and my noble friends Lady Drake and Lady Turner for raising some significant concerns.

There has rightly been a long consultation on this issue, and it is right that the Government have taken the time to listen to a wide range of voices, particularly regarding the retrospective nature of the changes, the significance of which has been highlighted by the noble Lord, Lord Kirkwood, and others. While on one level these are very technical changes—I say to my noble friend Lady Drake that, being a relatively normal person as far as pensions are concerned, if in no other respect, I found that “complex” did not begin to describe my emotions—sadly, I felt the same way as Brazil when I was reading these. None the less I confess that the questions I am asking the Minister are

9 July 2014 : Column GC106

quite genuine and I will find the answers fascinating, because I certainly do not pretend to understand the exact implications of what is happening here.

As my noble friend Lady Drake explained, the original draft SI was withdrawn after being challenged by the Joint Committee on Statutory Instruments. It has been replaced by two orders: this affirmative draft instrument and a negative instrument, the Pensions Act 2011 (Transitional, Consequential and Supplementary Provisions) Regulations 2014, to which I shall refer from now on as the negative instrument, if noble Lords will bear with me. Those two orders are completely intertwined. Indeed, the Government issued a single impact assessment covering both. Therefore I hope that the Minister will forgive me if some of my questions end up straying into that territory. I simply want to understand the settlement that the Government reached, and inevitably the ground is split in practice between the two instruments.

On commencement, my noble friend Lady Drake explained that these regulations will apply primarily with prospective effect, with the exception of two limited circumstances relating to winding up and to employer debt where there is a risk to member benefits. However, there will be retrospective protection for the affected pension schemes, with earlier decisions effectively being validated. The key effects of that of course—as has been mentioned—are on schemes that switch from being money purchase to defined benefit, with all the significant regulatory, governance and funding implications that that switch carries. There is also the effect on wind-ups and administration and the impact on employer debt. The Government originally intended that the provisions should all be retrospectively applied, but changed their position on consultation. The Government response to the consultation on the definition of money purchase schemes says at paragraph 50:

“However the Department has been persuaded that, where there is negligible risk to member benefits, it would be unduly burdensome to require schemes to revisit past decisions. This would give rise to expensive administrative costs that could deplete scheme assets and therefore, the ability to fund members’ benefits”.

Paragraph 51 continues:

“Nevertheless, where there is a real risk to member benefits, it is right that the legislation provides that employers fund a scheme deficit if a scheme is underfunded on wind-up, or if the scheme is unable to put in place a recovery plan”.

The response goes on to explain that in practice the transitional regulations validate the actions of trustees or managers in respect of those non-money purchase benefits, except in limited circumstances.

If that is the basis of the transitional protection that is being offered by the Government, can the Minister tell the Grand Committee a bit more about the basis of their assessment? The impact assessment says that,

“there is insufficient information available to accurately estimate the number of schemes affected by these regulations”.

It goes on to say that there are approximately 40,000 private occupational pension schemes in the UK that include money purchase benefits, of which about 2% are hybrid schemes.

9 July 2014 : Column GC107

The impact assessment says that during the consultation the department held four stakeholder forum events, with more than 100 stakeholders in attendance. It had 95 responses to the consultation document. The department also made direct approaches to relevant organisations, including employer representative bodies. As my noble friend Lady Drake mentioned, it also went out and made direct attempts to get data, in order to better understand this. However, paragraph 25 of the impact assessment says:

“Despite these efforts the Department is unable to quantify the impact of the regulations on the schemes that are likely to be affected. There is no data available at an industry-wide level and the consultation did not elicit sufficient data at scheme level to allow us to produce reliable estimates of the impacts on schemes, employers or members”.

However, the Government were obviously given a pretty clear steer by the industry that the consequences of retrospection would be significant, because the impact assessment says at paragraph 30:

“The Department have taken into account the strongly expressed views of those in the industry. Having carefully considered these responses, the Department is persuaded that this change to the policy”—

as was quoted—

“will not appreciably increase risk to members’ entitlement or make any material difference to members’ pension outcomes, given the protections put in place through these regulations”.

My noble friend Lady Turner said that she was pleased the Government were able to give assurances that members would not find their benefits being affected. However, I have to ask—along with my noble friend Lady Drake—how the Government can be confident that the risk to members’ entitlements is negligible and will not increase appreciably, when they are unable to quantify even the number of schemes affected, never mind the number of members, and when they do not seem to have been able to gather any data about what the quantum of that effect might be. I understand that they are in a difficult position, but I wonder what degree of confidence the Government have, and therefore what degree of assurance the Minister can offer the House through this Grand Committee, that these regulations will have the effects that the Government believe they will.

4.30 pm

I look next at timing. The plan is to give a reasonable period for effectively newly DB schemes to comply with existing legislative requirements. It is proposed that 2015-16 will be the first year that the PPF levy will apply to them. They will not have to appoint actuaries until October. The effective date at which assets and liabilities are valued is within 12 months of coming into force, and valuation must be completed within 15 months. I understand the rationale for the first two, on the levy year and the actuaries, but can the Minister explain why the Government felt it necessary to allow 27 months for affected schemes to comply with existing funding requirements?

Despite having read all three instruments, the Explanatory Notes and the impact assessments, I have ended up being unable to work out if there are any losers and, if so, who they might be and what they might lose. Can the Minister shed any more light on

9 July 2014 : Column GC108

that? Which groups of beneficiaries have the potential to lose out as a result of these changes and the decision on retrospection and transitional protection? My noble friend Lady Drake gave some interesting examples, I would be interested to hear the Minister’s response to her. I would also be grateful for any further light he can shed on that.

Then there is a question of the definition of money-purchase benefits. The Government introduced a new definition in Section 29 of the Pensions Act 2011. That new statutory definition will not come into force until the regulations are in force, but it will then apply retrospectively from 1 January 1997. As I understand it, that means that benefits that have been administered and communicated to members as money-purchase benefits will become defined benefits. If so, that raises a number of questions. Will the trustees of a newly DB scheme have to pursue former employers who left without paying a Section 75 buyout debt, or whose debt was calculated without regard to the formerly DC assets and liabilities? Will trustees of a newly DB scheme have to revisit past valuations to ensure that they pick up former DC assets and liabilities and include those assets and liabilities in future valuations, even though that could add materially to the costs?

If members of a new DB scheme were told that their contributions to a DC scheme brought benefits which would get top priority were the scheme to wind up, and that these benefits would now be reduced due to a deficit on the DB scheme, how should any claims from members be addressed? On the Pension Protection Fund, what assessment have the Government made of the impact on the PPF levy going forward?

Finally, trustees of newly DB schemes will need to decide how they will administer the scheme between now and when the new statutory definition comes into force. They are in a strange position: their scheme is currently a DC scheme, but they know that it will probably become a DB scheme with effect from 1997. Obviously, it is welcome that these regulations provide a degree of clarity, but can the Minister elaborate on any advice that his department has offered or is offering on these issues? I look forward to the Minister’s reply.

Lord Bates: My Lords, a number of questions have been asked. I have counted 19, which compares to the five that were asked when these regulations were scrutinised in the other place. I am sure that that is a reflection of the quality and expertise, if not the viewing habits, of the members of the respective committees. I confess that at one point last night I was not sure whether the scoreline reflected the football match I was watching or the judgment of the Supreme Court which happened to be open on my lap at the same time.

Lord Kirkwood of Kirkhope: That was 4-1.

Lord Bates: At half time.

There are many questions and I want to try to address as many of them as possible to get the responses on the record for people to scrutinise. First, my noble friend Lord Kirkwood asked how many schemes were affected by the clarified money-purchased benefits

9 July 2014 : Column GC109

definition. It has not been possible to quantify the exact number of the affected schemes as trustees and scheme managers are only required to make detailed reports to the pensions regulator on benefits that they consider to be non-money purchase. Schemes are not required to provide detailed reports of benefits that they consider to be money purchase, so any information held by the regulator here is self-reported by the scheme on a voluntary basis.

We consulted extensively on this point, and the regulator has also tried to secure additional data. However, stakeholders have been unable to share with us the detailed scheme-level data because that information is sensitive and restricted. A small number of consultation responses indicated the size of the scheme and the potential costs involved. However, the information is not representative of all the schemes affected, and cannot be reliably used to produce an aggregate estimate. The DWP continues to work with the regulator to identify and communicate with effective schemes to establish more comprehensive data on how many schemes are to be affected.

My noble friend Lord Kirkwood also asked whether with the new definition the Government are adding costs and increasing the administrative burden on the schemes. I can assure my noble friend that that is not the case. Although the clarified definition is retrospective to 1 January 1997, in most cases the regulations modify the retrospective application of regulatory legislation so that schemes will not need to look back at events where benefits could fall into a category affected by the Bridge judgment or the clarified definition in Section 29. The clarified definition will mean that the member benefits are protected. The transitional measures will bring schemes into compliance, are proportionate and bear in mind the risks and the burdens on members, schemes and employers. We believe that that is the sensible approach, precisely because the Government want to minimise the additional requirements on schemes without jeopardising the protection of the scheme’s members.

My noble friend also asked why the Government insisted on a change of definition, and asked whether the Supreme Court decision was wrong. The Supreme Court judgment concerned two specific scheme benefit types: benefits which provided a guaranteed pot, otherwise known as cash balance benefits, and pensions in payment from schemes derived from money purchase benefits, both of which the court decided could be money purchase. The decision meant that some guaranteed benefits from outside the regulatory regime conflicted with the Government’s view of what constituted a money purchase benefit.

Why are the regulations not together? The department’s advice was that both sets of regulations would be debated together subject to the affirmative procedure. However, following comment from the Joint Committee on Statutory Instruments, the department decided to split the regulations. However, we expect that because both sets are closely linked together, the discussion will encompass transitional arrangements for both regulations.

9 July 2014 : Column GC110

I have addressed the question of why there are two separate regulations, but I will add one additional point. It has been necessary to divide regulations in that way because the primary legislation under which the regulations have been made—Section 33 of the Pensions Act 2011—provides a different parliamentary procedure for regulations which amend primary legislation. I appreciate that that procedural requirement has not made discussion and debate in this area easier, but I am happy for this debate to encompass both sets of regulations, as it has already done. On why the clarified definition of money purchase benefits is retrospective to 1 January 1997, the Government have decided on retrospection to that date so that the effect of the clarified definition coincided with the inception of key pension protection legislation. Provisions of the Pensions Act 1995 largely came into force in April 1997, hence the chosen date, but retrospection was set up on 1 January 1997 as the financial assistance scheme eligibility began for schemes which started winding up from that date. However, since the Pensions Act 2011 was passed, we have no evidence that any of the schemes in this position would have been affected by the Bridge Trustees judgment or Section 29.

The noble Baroness, Lady Drake, asked whether there was a pre-existing requirement to have benefits valued consistently with legislative requirements in the past. Some schemes may have valued in a way that was not consistent with those requirements. Evidence from the consultations showed that members’ benefits which here are affected by Section 29 and the regulations might have been revalued by the application of notional interest or investment return. It is possible that this would have been less than revaluation in accordance with statutory requirements. However, we had to balance the protection of members against avoiding administrative complexity for schemes. Evidence suggested that the cost of applying revaluation arrangements would outweigh the benefit to members.

The noble Baroness, Lady Drake, also asked what the new cash balance method was. The new cash balance method is based on an existing flat rate method, which requires deferred members to receive any increases that they would have received if they had still been active members of the scheme. She also asked why there is no requirement to revisit the scheme if it is wound up. If the scheme is still being wound up at the time that the regulations come into force and is underfunded, trustees will be required to revisit an employer debt before the regulations come into force. If the scheme has completed winding up when the regulations come into force, there is no scheme in existence to unwind; all the assets of the scheme have been dispersed. The regulations therefore do not require a scheme that has completed winding up to be unpicked.

A question was asked about why schemes newly eligible for the Pension Protection Fund will not be treated as such until 1 April 2015. That date marks the beginning of the first full levy year after these regulations are planned to be in force. The delay will allow the schemes time to correctly determine whether they are eligible for the fund and to carry out the necessary valuations on which the first levy bill will be based. It also ensures that schemes will not be required to pay

9 July 2014 : Column GC111

the levy in respect of past periods. It would not be fair to other levy payers to provide protection for an earlier period for a scheme that has not paid any levy.

The noble Baroness, Lady Drake, raised the question of flipping. The department’s consultation exercise did not identify any scheme that will become newly eligible for the Pension Protection Fund that has a sponsoring employer likely to become insolvent in that small window of time. If such an event does occur, the Government will give consideration to the most appropriate way of protecting scheme members. It would therefore not be fair to other pension protection levy payers to protect the members of a scheme in respect of a period of time when the scheme had not paid into any levy.

The noble Baroness, Lady Drake, asked whether once the regulations are in force it would still be possible to change the scheme benefits without member consent from one form of non-money purchase arrangement to another with a lesser benefit promise. A change of this nature—a detrimental modification under Section 67 of the Pensions Act 1995—would still be subject to a requirement that the value of the members’ rights or benefits was not less than before the change. If this requirement were not met, the change would be subject to being made void by the Pensions Regulator.

The noble Baroness also suggested that there were insufficient data for the Government to be able to conclude that there will be a negligible effect. Section 67 will continue to apply except in very limited circumstances where schemes have changed benefits from cash balance to money purchase. This circumstance is catered for in the negative set of regulations, which require the actuarial calculation between cash balance and benefits collected in the money purchase schemes to be maintained. In addition, the trustee approval and reporting requirements must have been satisfied.

The point was made that retrospection makes these regulations too complex. The clarified definition, when in force, will be retrospective to 1 January 1997. Retrospection to January 1997 is needed to protect the position of schemes that had taken decisions in accordance with the clarified definition in Section 29—that is, not in accordance with the Supreme Court’s judgment—but for schemes that have acted in accordance with the judgment, these regulations modify the application of regulatory legislation with retrospective effect and for the transitional period where necessary. The regulations cover the many different types of pension arrangements that currently exist and which could have been affected by the judgment of the Supreme Court in respect of Section 29.

4.45 pm

I shall come shortly to the question asked by the noble Baroness, Lady Turner. The noble Baroness, Lady Sherlock, asked how many schemes would be affected during the transitional period. The negative regulations contain detailed provisions to cover the transition from compliance with money purchase regulatory requirements; for example, Regulation 68 provides for the schedule of payments to remain in place until a first schedule of contributions is prepared.

9 July 2014 : Column GC112

On the noble Baroness’s point about advice for scheme members, we are working with the Pensions Regulator to provide information for trustees to cover that area. The noble Baroness asked who could lose out, as did the noble Baroness, Lady Turner. Schemes may face additional cost. We believe that we have taken a more balanced approach, to ensure member protection.

The noble Baroness, Lady Sherlock, asked about commencement, retrospective protection for schemes, decisions being validated and how the department decided on these. It is correct that the Government have been unable to quantify the full impact. However, we have gathered data on the practices of affected schemes. Where schemes have provided benefits affected by Section 29, those benefits would have been treated as money purchase and would have been subject to fixed-rate and notional revaluation. Those benefits would not have been subject to transfer or in a scheme transferring to the Pension Protection Fund. They would have been paid in full. Therefore, we concluded that the measure was unlikely to have any detrimental effect on members.

On why 27 months are being given to comply with the existing funding requirements, this applies only to schemes that wholly flip from money purchase to defined benefit or hybrid schemes with money purchase benefits in them. They are treated as if they are a new scheme under the existing legislation and will have 27 months to take a revaluation and to put in place a recovery plan, if required, in accordance with the scheme funding requirements. However, this applies to ongoing schemes. If the scheme is a hybrid scheme and already undertaking scheme funding, it would carry over its responsibility for the existing scheme funding cycle. These measures were put in place to allow ongoing schemes enough time to undertake complicated and detailed actuarial evaluations required for scheme-funding purposes. Schemes that have been treated as money purchase will continue with their existing schedules of payments for contributions in respect of member benefits until a scheme funding contributions schedule is enforced within the 27-month period.

The noble Baroness, Lady Turner, asked about protection for people in defined benefit schemes and possible movement across. I can confirm that members of defined benefit schemes will still be subject to existing protection under their schemes.

I am grateful for the points that have been raised in this debate in relation to the regulations and more widely to the more detailed and linked regulations, the Pensions Act 2011 (Transitional, Consequential and Supplementary Provisions) Regulations 2014. The two sets of regulations are inextricably linked in that, together, they support the clarified definition of money purchase benefits in Section 29 of the Pensions Act 2011, and it is right that we consider them together.

For the vast majority of schemes with benefits affected by the clarified definition of money purchase benefits, the two sets of regulations will be helpful and provide much-needed clarity about what is and is not a money purchase benefit. They will facilitate everyday decisions made by trustees and managers in running a

9 July 2014 : Column GC113

pension scheme by setting out how and from when the existing legislation relating to benefits that do not meet the clarified definition of money purchase benefits must be applied.

Many in the pensions industry agree that clarity was needed following the Supreme Court judgment in the case of Bridge Trustees and others. The Government have consulted widely and extensively with the industry and others in developing these regulations. By and large, the provisions within them have been welcomed. In the case of a small minority of schemes where representations have been made that these changes should not apply, the Government have worked closely with individual schemes in order to understand the reasons why. The Government are sympathetic to such representations and, as far as possible, easements have been made through transitional arrangements to facilitate such schemes to comply with the new requirements.

The Government also recognise that some trustees and others may have had a different understanding of money purchase benefits in the past. That is why the Pensions Act 2011 (Transitional, Consequential and Supplementary Provisions) Regulations 2014 made detailed transitional provisions so that in the main such past decisions will not need to be revisited. The fundamental point here is that pensions law has a range of provisions that exist to protect members with pension benefits against the risk that their scheme is not able to meet the pensions promise. These include the statutory regulation of funding and the backstop of the Pension Protection Fund if sponsoring employers become insolvent and the schemes are underfunded.

Money purchase benefits fall outside this legislative protection, and that is why the Government have always taken the view that the term “money purchase benefits” should not refer to benefits where there is no risk of a funding deficit. For example, it is not appropriate to reopen the decisions made in relation to schemes that have completed their wind-up some years before or to require schemes to comply with scheme funding requirements going back in time. Further, it would not be practical to revisit past levy bills or valuations on re-entry into the Pension Protection Fund, as it was determined. If the Government had not acted following the judgment, members would have found that their schemes were unable to pay their benefits, but they would still not have been eligible for help from the Pension Protection Fund. It could also have led to anomalous results where the assets of schemes in wind-up were distributed. Similarly, if any scheme were to be exempted from the provisions in either set of regulations going forward, their members would not be protected. It is paramount that all members have the reassurance that their pensions will be protected if there is a risk of a deficit in the funds that they support.

It is also important that members, trustees and the wider pensions industry are clear about what the definition of money purchase benefits actually means in practical terms. These regulations provide that protection for members and give much-needed clarity about what action is going to be needed. At the same time, they provide transitional measures to ease the schemes and employers into the regulatory regime where they have previously not considered it to apply. For example,

9 July 2014 : Column GC114

schemes that have not previously complied with scheme funding requirements are treated like new schemes and given 27 months to put in place appropriate scheme funding requirements which aim to ensure that the scheme is able sufficiently to fund benefits that have been guaranteed to members.

These draft regulations make modifications to the existing primary legislation to provide supplementary and consequential measures—

Baroness Drake: My Lords, this may be an appropriate moment to intervene because I want to push the Minister on a couple of points. I have been trying to anticipate when he would be coming to the end of his remarks.

Perhaps I may go back to two points. First, Section 67 rights under the 1995 Act are pretty important rights that get people rather excited. The concern I was trying to express was that this seems to set the precedent that you can provide retrospective protection for schemes that have breached Section 67 rights and obligations. What level of assurance can the Minister give that this is not a precedent that could be used for undermining the strength of Section 67 in the future by giving retrospective protection?

Secondly, in terms of how this retrospective protection applies where schemes have breached Section 67, I should point out that the Government do not know which schemes have done this. They have just heard about this from the industry, so they are giving a sort of blanket assurance without knowing the number and type of breaches of Sections 67. If they do not meet the actuarial equivalence terms, it is not clear whether they will have to go back and redo it.

Thirdly, if they did it inadvertently, they probably did not do any actuarial equivalence exercise at the time. Is it therefore being said that they can do one with hindsight now, and can look back and say, “Had that been applied at the time”? It is quite important to get clarity on this Section 67 point, because there are lots of disputes and case law around it. It tends to get people who are interested in members’ benefits quite excited if there is an attempt to compromise it in some way.

On the flipping schemes, which are not protected in terms of access to the PPF until April 2015, I note that, as was said, if you have not paid the levy then the liability if your employer goes insolvent should not go to other levy payers. However, the issue is that it is a government responsibility, because the Government are obliged under the EU directive. I was looking for as firm an assurance as possible that, if an employer with a scheme that has to flip from DC to DB goes into insolvency before or up to April 2015, the Government will not walk away from giving some kind of protection to those schemes with DB benefits the members of which may now be caught outside the protection regime; hopefully there are none or, if there are, they are very tiny.

Lord Bates: I am grateful for those additional points. Let me try to answer them as best I can. It might be helpful if I wrote to the noble Baroness and shared those responses with the Committee. I realise that they are important issues.

9 July 2014 : Column GC115

To respond to the specific issue of Section 67 rights, the appropriate regulation is Regulation 8(3)(b). The Government believe that the protection is not undermined, because there must have been an actuarial equivalence. If they do not meet the actuarial equivalence requirements, they will have to go back and unpick them. In fact, the regulations introduce a new protection for members, which underpins the benefits. However, as I said, I shall seek further guidance on that and write to the noble Baroness and other Members of the Committee.

These draft regulations make modifications to existing primary legislation to provide supplementary and consequential measures to support the coming into force of the clarified definition of money purchase benefits in Section 29 of the Pensions Act 2011. I hope that I have set out for the Committee the rationale for these regulations and have responded to the matters raised. I commend these regulations to the Committee.

Motion agreed.

Public Bodies (Abolition of Food from Britain) Order 2014

Motion to Consider

5 pm

Moved by Baroness Northover

That the Grand Committee do consider the Public Bodies (Abolition of Food from Britain) Order 2014.

Relevant documents: 1st Report from the Secondary Legislation Committee, 1st Report from the Joint Committee on Statutory Instruments

Baroness Northover (LD): My Lords, I welcome this opportunity to introduce the Public Bodies (Abolition of Food from Britain) Order 2014. First of all let me explain why the Government have proposed to abolish the public body, Food from Britain. The rationale for this is quite straightforward and I can assure noble Lords that I am not actually abolishing all food from Britain, which might be a little more controversial than this order.

The Government have made a commitment to reduce the number of unnecessary public bodies. In July 2010, my right honourable friend the then Secretary of State for Defra announced proposals to reform a number of departmental public bodies. These included Food from Britain, which—if I can use inverted commas throughout—was set up under the Agricultural Marketing Act 1983. It operated between 1983 and 2009, focusing mainly on the promotion of UK food and drink exports. In 2008, the Food from Britain Council took the decision that the body should be administratively wound down, following a reduction in its grant in aid by the previous Administration. Food from Britain ceased its activities in March 2009. All the staff were made redundant and the body vacated its former offices in 2009. However, Food from Britain was not formally abolished at that time.

9 July 2014 : Column GC116

Although the legislation which provides for Food from Britain remains in force, the Government continue to have a legal obligation to publish annual reports and accounts. Despite having no activity to report, the cost of preparing and publishing the reports is in the region of £3,000 a year. Formal abolition of Food from Britain will eliminate this unnecessary cost. The Public Bodies Act 2011 provides the legislative mechanism for the Government to carry out reform of public bodies. Food from Britain is listed in Schedule 1 to that Act. This enables the Minister to lay an order under that Act to abolish it. This order, when made, will dissolve Food from Britain in law by repealing the legislation which first established it.

In accordance with the requirements of the Public Bodies Act, a UK-wide consultation was carried out in the autumn of last year. Having carefully considered the consultation responses, it is now proposed to repeal the legislation which provides for Food from Britain by an order under the Public Bodies Act. Ministers in the devolved Administrations have given their consent to the abolition of Food from Britain, as required under the Act. As Food from Britain is effectively defunct, its abolition will have no impact on jobs. However, it will remove an unnecessary public body from the legislative framework and will reduce costs to the taxpayer. Abolition of Food from Britain is a legal tidying-up exercise, but I can assure noble Lords that the Government are firmly committed to strengthening the UK food and drink industry.

The agri food and drink sector is already the UK’s largest manufacturing sector, supporting 3.6 million jobs and adding £97.1 billion to the economy. British food and drink is known throughout the world for having the highest standards of quality, safety and traceability. By increasing food and drink exports, the sector can grow further. My honourable friends the Defra Ministers have made it a priority to promote British food and drink at key international trade shows, and negotiate to remove trade barriers and open up new markets overseas. In 2013, my right honourable friend the Secretary of State at Defra, Owen Paterson, visited China on two occasions to support UK produce and to negotiate market access. Last week, he was in the USA to discuss the opportunities the EU-US Transatlantic Trade and Investment Partnership offers for our producers and exporters. My honourable friend the Farming and Food Minister George Eustice also visited the Gulfood trade fair in Dubai, in February, to promote UK food and drink. In 2013 Defra opened 112 new overseas markets for animals and animal products, increasing exports outside the EU by £179 million to £1.35 billion. Some 54 new markets have been opened in 2014.

UK Trade and Investment provides both potential and active food and drink exporters with a range of advice and assistance to help them take advantage of new markets, including providing funding to attend international trade fairs; organising international “meet the buyer” events; running GREAT week events in priority markets worldwide; and offering a range of seminars and advice.

In October 2013 Defra and UK Trade and Investment launched the UK Food and Drink—International Action Plan at the Anuga trade event in Cologne, the world’s

9 July 2014 : Column GC117

largest food and drink fair. The plan sets out how the Government are working closely together with the industry to promote trade, break down barriers, open up new markets and champion what is great about British food and drink. The export action plan outlines, among other goals, an ambitious target jointly agreed by the Government and industry to add £500 million to the UK economy though assisting 1,000 UK food and drink companies with their international growth by October 2015. That is a 400% increase in support for the sector.

I hope that it has been helpful to give this explanation about the rationale for the abolition of the body entitled Food from Britain and the continuing support that the Government are giving to the food and drink sector. I commend this order to the Committee.

Lord Grantchester (Lab): My Lords, I remember Food from Britain very well. It appeared just before the introduction of milk quotas and has not quite been able to outlast quotas over the last 25 years. I declare my farming interest in a dairy farm.

I thank the Minister for her introduction and explanation of the order before the Committee. I am very happy to support the order to abolish the organisation Food from Britain. However, it is interesting to put it alongside the quota regime in its timing and duration. Agriculture has an almost universally recognised leadership as an industry for its productivity and efficiency improvements since the Second World War. Farmers are very good at producing, especially when working with science. However, they are somewhat less good at marketing their produce. Food from Britain represents one of the many and continuing ventures into marketing assistance.

As ever thus, as a non-departmental public body Food from Britain was brought to a close by the withdrawal of funding. Can the Minister say whether these organisations ought to have sunset clauses included in their set-up legislation to complete the administrative processes. However, it seems rather extravagant that the Ministry should agree with its order to pay £3,000 a year for a nil return from a defunct organisation.

The Explanatory Memorandum is excellent in explaining the tidying-up operation regarding pensions and the transfer of functions to other bodies. The legacy of Food from Britain is a good one. UK Trade and Investment, together with the Food and Drink Exporters Association, have collaborated to produce the UK Food and DrinkInternational Action Plan—although the Food and Drink Federation contends in its consultation submission that it was only the desire to tidy up administratively that led to this progress. Once again, sunset clauses would be a catalyst for improvement. The local and regional food marketing organisations also do an excellent job in these times of localism and evolution to local people and local funding.

Regarding the explanations in the memorandum concerning the protected food name scheme, I will ask the Minister one or two questions. Can she clarify Defra’s role under the scheme? Is it devolved? If it has a presence within Defra, is that as a proactive support to companies, regions or organisations in their plans for recognition, or as a certifying body to organisations

9 July 2014 : Column GC118

in their applications for recognition at EU level—or, indeed, something else? Finally, the Explanatory Memorandum underlines that the legal ownership right to the name “Food from Britain” and the domain name, foodfrombritain.com, remain with Defra. That this is retained may signify that Defra recognises that it still has some value. Ministers may well have used the name Food from Britain in championing British food at international trade shows. Does Defra have any plans for the name, Food from Britain? Has it considered licensing the name for a fee or for a length of time, or even considered selling it? Does it intend to add value to UK food by the use of this name in any way?

While agriculture still needs marketing improvements, I am content that Defra has made the case for the abolition of Food from Britain. In conjunction with the Secondary Legislation Scrutiny Committee, I am happy that the abolition of Food from Britain will make a small contribution to improving the exercise of public functions.

Lord Rooker (Lab): My Lords, I had hoped that I had seen the last of this Room when I left the Government. I find it the most depressing place to work in the whole Palace of Westminster, but I wanted to come today to say a few words and, it turns out, to set the record right.

I am a great believer in Ministers being accountable to Parliament for the decisions that they take. There was never an opportunity to be accountable for this decision, which I personally took early in 2008. Defra was in real trouble. So bad was it that we had to revisit the budget for the year that we were in. The rationale had absolutely nothing to do with food policy. The fact is that I had to find in the area that I was responsible for some £4 million or £5 million of cuts.

I always said that I did not agree with top-slicing to cut budgets, because you end up cutting good things to protect the bad. I was always in favour of saying, “Let’s stop doing something”. I think that I was presented with three or four options—I have not been back to check because this is from memory. There were a couple of serious animal health issues that I had to keep in the budget. This body was a prime candidate for being cut—I did not want to do it, but I could not conjure up £5 million.

We looked at the effectiveness of the body. We have seen from the way in which the Minister has presented the overall issue of food—the phenomenal, record-breaking level of exports—that this is the biggest manufacturing industry that we have. It is very important, although I do not want to go down that road. But if this body appears on a list of quangos cut by the coalition on the basis that “We’re having a bonfire”, that is a lie that would be challenged and I do not want to start a row. As the Minister knows and as the memorandum says, the body ceased activity in 2009. All the staff were made redundant. It had nothing to do with the coalition Government. The fact is that the mechanism for winding it up was not there. I am just amazed that it took five years to get us to this point. In fact, I suspect that the memorandum before us has cost £5,000 to put together, let alone the money that has been spent on accounts for no reason.

9 July 2014 : Column GC119

This discussion also gives me an opportunity to say that, although I had representations from some of the regional groups, I owed an enormous debt to the chair of Food from Britain, who I recall was the noble Baroness, Lady Jay, for the positive way in which she operated in this area. We had discussions about it. She went back to discuss it with the council and got the decision. I put it on record that she made my job a lot easier, because there was no great row about it ceasing activity.

The Explanatory Memorandum mentions that no one wanted to take over the work of Food from Britain because of TUPE. I do not want to make a big thing of it—I rang the office of the noble Lord, Lord De Mauley, yesterday to give notice of this—but I recall that there was a peculiar arrangement with certain members of staff about their salaries. However, the fact that we were going to abolish the body meant that we did not have to go down that route. The pension payments were substantial—they were a few million pounds—so it probably took a couple of years before the savings started to accrue to Defra.

While this has taken a long time to do, it is good that it is now wrapped up. I do not know what has happened with the rest of the Public Bodies Act and all the big organisations, but it is amazing that this should have happened with such a tiny body. By the way, I freely admit that I do not recall consulting any of my devolved colleagues on this. This was a straightforward matter about Defra running out of money and needing to cut something on the basis that we were not going to top-slice. We got the agreement of the council to wrap itself up.

5.15 pm

While the food industry has gone from success to success, my one caveat relates to the regional organisations involved in the promotion of exports. I was reassured at the time that we could rely on the regional assemblies to help to fund them. Of course, one of the first things that the coalition Government did was to abolish regional operations. I know that the consequence of that has been a shortage of funds. I read only the other week that the body in the Midlands, with its headquarters in Shrewsbury, has decided to close because of a problem with the funding arrangements.

As far as the food industry is concerned, I do not think that this made the slightest bit of difference. I have explained the reasons for the abolition of the body. I was a bit surprised when Hilary Benn decided to make the announcement, because usually Secretaries of State want to make the big good-news announcements and leave it to the juniors to make the negative statements, but he was quite content to issue the Written Statement. Given that we had to find £5 million, the reality was that we either had to do this or we had to cut something to do with serious animal health issues. I do not think that there were any great discussions about where the body sat within the food industry. It had outlived its usefulness in many ways, which I think is probably another factor. As I say, this gives me the opportunity to thank the council, particularly the chair, who made the job of the Minister responsible for chopping it that much easier.

9 July 2014 : Column GC120

Baroness Northover: My Lords, I thank both noble Lords who have contributed to this mini-debate on the order to abolish Food from Britain. I thank them both for their support. As they made clear, the order removes what is effectively a defunct body that has not operated for more than five years. It is excellent to have the noble Lord, Lord Rooker, contribute on the back story and I hope that historians will take note of what he said. It is clear from what both noble Lords have said that the body’s removal will have no impact on UK food and drink exporters but will save the taxpayer around £3,000 a year.

The noble Lord, Lord Grantchester, is right in his reference to the name: Food from Britain is indeed a rather wonderful name. I assure him that Defra owns the legal rights to the name and to the website domain name. There are no plans to use the name or the domain name, but he may be reassured to know that we own them.

The noble Lord, Lord Rooker, wonders why it took so long to abolish Food from Britain. The kernel of that is perhaps in what he said—the body was so small that it fell down the order of priority. As he will note, primary legislation was formally required to abolish the body; it would have to repeal the Agricultural Marketing Act, which set the body up. I note with interest what the noble Lord, Lord Grantchester, said about sunset clauses and how useful they might be in certain circumstances. However, they were not built into the legislation on this body, so we took the earliest opportunity to abolish it by including it in the Public Bodies Bill, which, as noble Lords know, was introduced in late 2010. Defra then had to prioritise which bodies should be abolished first. Given that this one no longer operated in practice and was, as the noble Lord noted, smaller, it came later in the process. We also, of course, needed to co-ordinate the process, including the UK-wide public consultation and the devolved Administrations.

Defra has, so far, abolished 51 non-departmental public bodies and it now has very few left to abolish. These are mainly defunct or non-operational and include Food from Britain, but I am very glad to be bringing the order forward to such acclaim this afternoon. I thank noble Lords again for their support and the time that they have taken to consider the order, which I commend to the House.

Motion agreed.

Legislative Reform (Patents) Order 2014

Motion to Consider

5.21 pm

Moved by Viscount Younger of Leckie

That the Grand Committee do consider the Legislative Reform (Patents) Order 2014.

Relevant document: 1st Report from the Regulatory Reform Committee

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie): My Lords, this order concerns an amendment to the Patents Act 1977. The change will allow medicinal

9 July 2014 : Column GC121

product assessments to be carried out without risking patent infringement. This will benefit patients by giving them earlier access to new medicines. It will also reduce a legislative burden on business, and encourage our important life sciences sector to run clinical trials in the UK. The life sciences sector is of significant economic importance to the UK. It generates turnover of more than £50 billion and accounts for over 6.6% of gross value added in the UK manufacturing sector. Exports of pharmaceuticals and medical technology accounted for 11% of UK goods exports by value in 2012.

I will explain the background to the order. In 2011, the Government committed to ensuring that the intellectual property system supports the life sciences sector. Removing the risk of patent infringement when assessing a new medicine will do this. This measure delivers on that commitment. Under current UK law, the regulatory regime for new medicines and the patent system are at odds with each other. The regulatory regime requires a company to demonstrate that a new medicine is safe for patients by carrying out clinical trials. Under the patent system, that company may be sued for using a patented drug in the trial. Of course, that does not make sense. The development of new medicines is critical for public health and the pharmaceutical industry plays a key role in meeting this challenge.

Pharmaceutical companies spend large amounts of money developing new products. In 2012, the industry spent more than £4 billion on research and development in the UK. However, only a small proportion of drugs in development ever reach the marketplace. Stakeholders have told us that it can take seven to 10 years to get approval to sell a new product. In addition, the success rate for early-stage studies can be as low as 18%.

Some drugs developed by pharmaceutical companies are combination products that combine a number of drugs into a single pill, which increases patient compliance. I will explain. Many patients have to take a number of pills several times a day. It is easy to forget to take some of them. Combination products make it easier for patients to follow their doctor’s orders by reducing the number of pills they need to take each day. These products often combine a new drug with an existing patented medicine, and it is the safety of the combination that is assessed in a clinical trial. In addition to clinical trials, tests called health technology assessments may be needed before a product can be recommended for use by the National Health Service.

To summarise: many of the tests that are carried out on new drugs require them to be compared to an existing medicine, which may be patented. The patented medicine could be used as a comparator or could be part of a combination product. The infringement risk is particularly high if the patented medicine that needs to be used is not actually for sale. When this is the case, the company carrying out a trial must first make the product.

There is even some legal uncertainty in the UK as to exactly which activities in this area are infringing and which are not. Because of this risk, companies often carry out expensive and time-consuming legal

9 July 2014 : Column GC122

assessments to determine whether it is safe to run a clinical trial in the UK or whether they should run a trial elsewhere. One company said that it spends up to £135,000 assessing the risk of infringement for each product in development. The infringement risks, and resulting costs, do not exist in many other member states of the European Union. In fact, the United Kingdom is one of only eight member states where clinical trials may infringe a patent.

The UK is in direct competition with countries such as Germany and France as a location for clinical trials work, as well as countries outside the EU, such as the US. With its narrow legal framework, the UK is at a competitive disadvantage as a location for trials and, consequently, as a manufacturing location for the final medicine. This is clearly undesirable. We want companies to be able to prove that their new medicines are safe and useful, without fear of possible legal action. This will allow them to bring new treatments to market as efficiently as possible. We also want UK patients and the economy to benefit from trials being run here. One large pharmaceutical company said that, due to current UK law, it may decide to run a particular trial abroad. This trial is for a disease which is prevalent in the UK, and there would be a clear benefit to both the company and patients for the trial to be run here in this country.

European legislation already allows trials for generic medicines to be run in the UK, to show that they are the same as the patented product of which they are a copy. This means that, as things stand, different classes of medicines and different types of trial are treated differently in UK law. This cannot be right. This legislative reform order seeks to address these problems by clarifying one of the existing exceptions to patent infringement. The change will specifically exempt from patent infringement those activities which are undertaken for the purposes of a medicinal product assessment. The change will allow data from trials run in the UK to be used for assessing medicines in any country.

The Government consulted on the changes. The overwhelming majority of responses agreed with the proposals. Responses also suggested that they will improve the desirability of the UK as a location for trials.

It is the responsibility of the Government to ensure that patent law achieves an appropriate balance between protecting the rights and interests of patent holders, and the wider public interest in new medicines coming to market as quickly as possible. To maintain this balance, commercial use of a patented product after obtaining regulatory approval or a health technology assessment recommendation is not covered by the amended exception. Someone who has completed successful trials and wants to commercialise a patented medicine in combination with their own product will still need the patent holder’s permission to do this.

The draft legislative reform order was laid before Parliament on 6 May and is made under Section 1 of the Legislative and Regulatory Reform Act 2006. This allows a Minister to make an order which reduces burdens resulting directly or indirectly from legislation. As I have previously explained to noble Lords, under the current legal provisions, companies often carry out

9 July 2014 : Column GC123

expensive legal assessments before running trials in the UK. It is these cost burdens which will be removed by the order. The changes will also remove the cost to a company of a clinical trial being delayed by legal challenges. The Legislative and Regulatory Reform Act also requires that certain conditions are met before an order such as this can be made. Exempting medicinal product assessments from patent infringement cannot be achieved by non-legislative means.

The changes contained in the order will apply only in limited circumstances. They will not allow the commercial exploitation of a product containing a patented component without the agreement of the patent holder. In any case, a company that wishes to avoid the risk of infringing a patent in the UK may simply choose to locate the trial in a country where the risk does not exist. A patent holder cannot prevent this. For these reasons, I am satisfied that the conditions of Section 3 of the Act are met.

Finally, it may be helpful if I briefly summarise for the Committee the benefits of this order. It will remove the risk of patent infringement when companies are assessing the safety of medicines, and this will make the UK a more desirable location for clinical trial work and help to support our life sciences sector. This in turn will bring economic benefits to the UK and new medicines to patients more quickly. I commend the order to the Committee.

5.30 pm

Lord Stevenson of Balmacara (Lab): My Lords, I thank the Minister for his comprehensive introduction of this order. It is an important one and I recognise the case that is being made. I should like to cover three issues because in essence I do not have any objections to what is being proposed; indeed, quite the reverse. I compliment the team responsible on a good job well done because it was a joy to read the order. I understand fully what is being done and therefore my questions are really rather trivial, which I am sure the Minister will be pleased to hear.

It is good to see that the LRO system is working well. It was introduced by the previous Government precisely for the sorts of purposes that are being envisaged today. There are hurdles in the way of its use, but they can be jumped over easily in the way that has been expressed today, and I understand why the LRO route has been taken. I have already touched on my second point, which is that this is a well-explained document which I enjoyed reading.

The issue as I understand it is that it is unfortunate that the way in which the original exception for research set out in Section 65(2) of the Patents Act 1977 has been to some extent subverted by judge-led changes in the sense that what the document refers to as a very “narrow interpretation” of that in terms of what constitutes research has been brought forward. My first question turns on this issue. I wonder whether the Minister has thought about reforming the Patents Act 1977 so as to introduce a broader definition of “research”. In saying that I am minded to think about other areas where the narrowing of what constitutes research may cause problems. One can see where this is going: research is obviously done for experimental purposes

9 July 2014 : Column GC124

related to the subject matter of an invention, and that is a clear and important definition. However, we live in the real world where people who are doing what is called research do it in an applied environment in which one may be testing the efficacy and effectiveness of what was originally discovered or developed. I worry slightly that we might be stumbling down a cul-de-sac in terms of other policy areas in the future. I think that the Minister is in a good position to reflect on that and give us his thoughts. Having said that, I think that the LRO route is the correct one, but I would be interested to know what arguments were used within the department, if they can be shared with us, as to why it was taken.

I understand the noble Viscount’s position on ensuring that clinical trials, field trials and health technological assessments can be carried out in the future without any risk of infringing a patent. He explained with care what the benefits would be not only to UK pharma, which we obviously support, and to UK plc in terms of economic developments but, more importantly, to future patient health that will benefit from new medicines and technologies that preserve lives and extend people’s ability to enjoy a good life.

My questions, apart from the principal one that I have already asked, are really about the consultation process; I was intrigued by the worries that seemed to be behind the idea of not one but two consultations. Governments are pretty bad at consulting. They do not like to do it; it slows things up and sometimes they get results that they do not want, so perhaps the Minister can reflect and let us know why, in October to December 2012, the same sort of questions were repeated that were asked in June to July 2011. One consultation would seem to be enough; two seems somewhat otiose. I am interested to know whether there is an answer to that.

Secondly, despite the fact that this is an important change and obviously one that will have good economic and, indeed, health outcomes, why did it take so long from the decision arising from the Plan for Growth report to get to this point—which is, after all, July 2014? Given that, as I understand it, the consultees were ranked in the tens rather than the hundreds or thousands, one would have thought that things could have been done better. Was there a particular issue that needed to be resolved, given that the consultation seemed to go well and the results were very clear?

My third and really very trivial point—which the Minister may dismiss and not answer—is that I have a slight whinge about consultations involving very small numbers being summarised in a numeric rather than qualitative way, so that on page 7 of explanatory document we initially get a response to the informal consultation that talks about “almost unanimous agreement” and the “majority of responses”. Given that we are talking about—as I think it says in the note—something like 16 responses, I find the terms “unanimous” and “overwhelming” a little underwhelming. That approach is taken again in paragraph 2.12 on the second, formal consultation, which refers to the “overwhelming majority” of responses. In this case, in notes 26 and 27, we again discover that there were 16 responses. I wonder whether they are the same ones that came up with an “overwhelming” figure. It is a

9 July 2014 : Column GC125

trivial point, but I think you demean the quality of the response if you try to overclaim for what was happening. It would have been interesting just to see the formal responses that the Government got, even though the number of respondees listed later on in the document shows that very few actually did respond. However, the responses clearly were of very high quality and allowed for a decision.

To conclude, I simply wish to record that this is a very good document. It is well expressed and the right route has been chosen for it. The reasons for it have been so well explained that I have no wish to delay further the implementation of the order.

Viscount Younger of Leckie (Con): My Lords, I start by thanking the noble Lord, Lord Stevenson, for his general support for this particular order. I note, and thank him for, his complimentary comments on its drafting, which will be very much appreciated by the officials involved. A number of questions were raised, although I may not be able to answer all of them. I also have questions of my own that I will answer myself in the process, which may help to round off this short debate.

The first question raised by the noble Lord concerned the definition of research and its scope. That was a fairly strong question and I will write to him with an answer. The second question was about the consultation. He will know that he mentioned that there were two consultations required; needless to say, they were to try to clarify the exact scope of legislative change and to gather evidence from industry. It is fair to say—and the noble Lord may have read—that there were issues in trying to get enough evidence. We were determined to push the evidence base and that is why we needed to go for the second consultation. It was a challenging process but that may give him an answer which satisfies him.

However, I want to raise a point that was made in the other place concerning the Regulatory Reform Committee, which had raised concerns about the lack of monetised evidence for the change. That links in with the consultation. We have considered very carefully the points made by the RRC and we did the best that we could to obtain evidence from the industry and apply the current guidance. We note, however, that at the end of the day the RRC recommended that the order be approved, although I imagine that it would be in its gift not to approve it.

A further issue that was raised in the Commons and which I thought might be helpful for the noble Lord and for the Committee is whether a patentee can have access to data generated on their own drug. The aim of the legislative change is to remove the need for companies to carry out assessments of infringement risk prior to running clinical trials. For this reason, it is entirely possible that the patent holder will not be known. To require sharing of data would simply replace one burden with another—that is, replacing assessing the infringement risk with identifying the rights holder. That would go against the aim of simplifying the patent landscape in relation to clinical trials. However, clinical trials regulation will require clinical studies to be properly acceptable.

9 July 2014 : Column GC126

I should like to answer a point raised by the noble Lord, Lord Stevenson, concerning the Patents Act, which needs to balance the rights of the patentee with benefiting legitimate research. To define the term “research” in legislation—this comes back to the point that I was going to write to him on, and I believe that I will still write to him—may cause some difficulty in the future. We have attempted to clarify the research exception in a proportionate way to target a specific problem. However, I will write to the noble Lord with a fuller answer.

I think that there were a couple of other questions. I will revert to Hansard, which no doubt in its usual way will report accurately what the noble Lord said, and I will then respond to the final question, if not two questions, that he raised. In the mean time, I commend the order to the Committee.

Motion agreed.

St Helena

Question for Short Debate

5.42 pm

Asked by Lord Shutt of Greetland

To ask Her Majesty’s Government what assessment they have made of the opportunities for the economic benefit and the enhancement of the lives of the citizens of the Island of St Helena consequent upon the expected opening of the new Department for International Development-funded airport in 2016.

Lord Shutt of Greetland: My Lords, I am delighted to have been able to secure this debate to discuss matters relating to St Helena.

It was precisely 50 weeks ago that I was privileged to visit St Helena on a second occasion. It was a privilege to go once but an immense privilege to go a second time. The reason for that visit was that the CPA had been invited by the governor to find people to conduct a seminar on governance for the newly elected councillors. As well as me, there was the honourable Tim Crookall from the Isle of Man, Deputy Barry Paint from Guernsey and Joyce Watson, a Member of the Welsh Assembly, and we had the tremendous benefit of a clerk, John Grimes, who is the former Head of Governance of the National Assembly for Wales.

We were there for the governance seminar but had been there for eight days or so, during which we became thoroughly aware of the prevailing issues on the island. We kept being asked, “Are you going to produce a report?”. We were asked that so many times that we discussed it among ourselves and said, “Well, we had better do it”. So we did produce a report, which went beyond observations about the seminar, covering the position of St Helena at that time. A year on, I think it is appropriate to see where we are.

We were delighted to visit the airport construction site and to see what an immense task it is. I certainly congratulate the Government on the important and early decision to build the airport and on the current news, which is that it is on time and on budget. It is

9 July 2014 : Column GC127

always gratifying to hear news such as that about a big construction development, and that development is well over half way.

I am surprised that, 32 months after the signing of the contract and with the work more than half done, we still have no knowledge of any air service, where it will go, how often and at what cost. I am aware that tenders are out, but I am not clear even on what the preferred route of the air service connection is. Indeed, what are the suggestions for the future of freight to the island?

There is a further complication in what is to become of the Ascension Island link. The Wideawake agreement—named after the airport at Ascension—was renewed on 1 October 2008 for five years. It is a very important link, currently by sea, for Saints to go to Ascension for work, and to go on further to the Falklands for work. We do not yet know about any renewal of that link. I find it strange that the US and the UK, which are friendly nations, are having difficulty securing a further agreement. It would be interesting to see whether the Minister has anything to tell us about that.

The new airport will bring clear benefits to islanders in terms of communication and people being able urgently to get to hospitals that can do work beyond what can be done on St Helena. There is also the economic benefit for the island of what I call “sensitive tourism”, for which there is a need for more hotel accommodation. A year ago, we were made aware of three propositions: the luxury Shelco development; the renovation of a fort overlooking Jamestown; and Nos. 1, 2 and 3 Main Street, Jamestown, right in the heart of the town. I wonder what the progress is on those developments. Is there not a problem that hotel developers do not yet know what the air links are going to be? I have looked on the internet and it is clear that you can now make bookings for exotic places in 2016. People who want to go to exotic places often think ahead quite a long way. Is there not a difficulty for St Helena, since we do not know where, when and at what cost aeroplanes will start?

On the Sunday evening when I was in St Helena, I attended the evening service at the Baptist church. The minister’s text on that occasion was, “Is your destiny sealed, secure and irrevocable?”. That is quite an interesting text for St Helena today. I am not certain that that question can be answered. Is the Department for International Development using its best endeavours at this very important time?

Since we were there 50 weeks ago, I have looked at every release on the St Helena Government website, which is very interesting. One of the features is the comings and goings of various people—people completing a term of three years and going back to the UK, new people coming and so forth. There seems to be a problem with vacancies. I am aware of one very important vacancy, which may now just about have been filled: that of the head of Enterprise St Helena. When we were there 50 weeks ago, we were made aware that the person then occupying the post was about to leave and only now has an appointment been made. Yet it seems that that job is absolutely crucial at this stage. I wonder whether DfID is using its best endeavours.

9 July 2014 : Column GC128

On the subject of employment, employment opportunities and the comings and goings, is DfID using its best endeavours to encourage the indigenous population and to train people up so that we are not constantly having to get people from the UK who do two or three years and then go back home again, with those who do not like it going home sooner? It would be useful to hear what is happening on that front.

Finally, we have the United Kingdom Government and the important Department for International Development on the one hand and, on the other, the St Helena Government and their arm’s-length agency, Enterprise St Helena. Are the rights, duties, responsibilities, obligations and expectations of each clear? I look forward to the wise words of colleagues who will follow and to those of my noble friend in responding to the debate.

5.51 pm

Lord Brooke of Sutton Mandeville (Con): My Lords, I congratulate my noble friend Lord Shutt of Greetland—now a considerable authority on the affairs of St Helena—on having secured this debate and on the germaneness of his wording in concentrating our minds. On 31 October last year, I intervened during the gap in a debate, initiated by my noble friend Lady Hooper, on the overseas territories. Today I seek to return to the questions I raised then. It is a pleasure and a coincidence, rather than motivations of egocentricity, which cause me to direct anyone interested in these issues to col. 1787 in the Official Report of that day, in which I alluded to a forebear of mine becoming Governor of the island in precisely the year 1787.

These issues are about how, when tourists arrive at the airport, they can be encouraged to recommend the experience to others through the fruits of improved conservation of both local natural history and Georgian buildings. I did not seek to be plaintive, but I did indicate that I had hitherto had difficulty in finding out how well meaning citizens in this country could assist in this project. The device I deployed through last year’s intervention was extremely successful in that it provoked responses from a worthwhile posse of interested and interesting correspondents. I have spent part of the seven and a half months since then becoming an octogenarian and the rest of the time seeking to put my affairs in order to respond to these intimations of mortality. However, I fear that I have consequently been guilty of discourtesy in not responding to each and every one of these very useful correspondents. I hope that if any of the writers pick up this debate too, they will regard my participation in it as evidence of my continuing interest.

I was especially grateful to the director of the St Helena National Trust for a long e-mail about the trust’s background and functions. I have been tempted to quote from it passim and verbatim but I felt that would be presumptuous without his authority. I would be happy to show the text to those noble Lords interested in the affairs of St Helena hereafter. However, I emphasise that there is no link between the St Helena National Trust and the National Trust in the UK, though both are members of the acronymic INTO, the International National Trusts Organisation, which is based at the

9 July 2014 : Column GC129

National Trust in this country. This long and helpful e-mail, which embraced both the natural heritage and the built environment, went on to furnish an attachment from the St Helena National Trust on the immediate future of the built heritage on St Helena. This is, in the short term, my principal interest and I will return to it to ask a specific question of my noble friend who is replying for Her Majesty’s Government. However, I shall first seize the opportunity to make brief reference to the natural heritage in order to indicate its attractiveness. This comprises, inter alia, the very significant and tiny world populations of the critically endangered wirebird, the spiky yellow woodlouse, the black cabbage tree, the he and she cabbage trees, and other very special fauna and flora, and their natural habitats. I am not going to dwell on them, save to say that great attention has already been paid to them; however, I should declare an interest as a trustee of MEMO, which acronymically derives from the Mass Extinction Monitoring Observatory.

I return to the issue of the built environment, where there is a drawback from the lack of the assignation of responsibility for St Helena’s built heritage to any government department, office or institution. This is a discouraging first impression in the context of the terms of this debate and the concerns for tourism; for it implies no responsibility for these structures, nor yet support for their maintenance. To shine a searchlight on this dilemma, the small NGO that I mentioned is in receipt of a £17,000 annual grant from the St Helena Government, while the two core staff alone require almost £30,000 per annum in salaries. This shortfall’s cure lies with the 4,000 souls on the island and those who come to visit, who are the subject of this debate.

On a more cheerful note, after the initial six-week training exercise last year for Six Saints under Henry Rumbold MBE—a redoubtable heritage stonemason with form on Fountains Abbey and the Prince’s Trust—all six have been assured of their certification within the UK’s NVQ3. In that regard, I should declare another interest as having been a long-term president of COTAC. I am looking forward to hearing whether these skills have been successfully engaged on site. In that regard, the attachment to which I made earlier reference is constructive. There are 967 historic structures recorded in the St Helena Historic Environment Register, with new discoveries daily still to be properly recorded. All these buildings would respond to the care of Mr Rumbold’s six charges and, even more, if intact, would make a lively contribution to the island’s economy.

I am not in a position to report on progress on the Governor’s own initiative in this area, but I will cite the opportunities available to clarify what could be achieved. This is, to some extent, a laundry list: replacing the mass concrete fill of inner courtyard at Plantation House with locally cut island stone flags, repointing the upper storey of the Essex House frontage—the lower storey was properly repointed with a lime mortar four years ago, and completing the partial restoration of Lemon Valley Lower Farmhouse, which was the site for the Six Saints’ training last year.

In parallel, there are structures not in daily public use that need to be brought back into management in a planned programme, which, again inter alia, could

9 July 2014 : Column GC130

be deployed towards tourist use as weekend and short-stay holiday accommodation for island visitors and tourists—which is relevant to this debate. Access, water supply, litter prevention, sewage works and day-to-day control would all help to minimise vandalism.

To identify specific target projects, I refer to Broadway House, which is now let to the trust—the NGO I mentioned—High Knoll Fort’s two major wall collapses, and urgent attention needs to be paid to Munden’s structures that are now slipping away. I shall mention a few more: Bank’s; the steps and railings of the Ladder; Ladder Hill Fort; Munden’s walls and paths; Man and Horse signal station; the Wharf Buildings and mortuary, and the Papanul wreck’s salvaged contents. I have tolled this requiem towards collapse in order the make the point that there is a ready-made programme available to the skills already locally acquired if financial means were available.

This brings me to my question for my noble friend. The 4,000 souls on the island and the present level of tourists will not be enough to capitalise on this opportunity, so the responsibility comes back to us. I have been advised that tax-advantageous devices are being devised to encourage heritage and conservation disciples in this country to make a contribution, which is what prompted my interest in the debate last year. Therefore my query to the Minister is whether Her Majesty’s Government are taking an interest in this domestic venture as regards a conduit, and if so, what progress has been made and in how long a future timeframe.

6 pm

Lord Jones of Cheltenham (LD): My Lords, I, too, congratulate my noble friend on securing this important and timely debate. Last month, a ceremony was held at the airport site in St Helena to mark the construction of the airport terminal building. His Excellency the Governor of St Helena opened the ceremony with a speech to the invited guests. In his speech the governor praised the airport construction company, Basil Read, for the marvellous work it is doing. He said:

“Over the past two years when asked about the biggest challenges of my job I have always said that the least of my concerns was construction of the airport. Why? Because it was clear from early on that Deon de Jager and Basil Read were up to the job”.

Other speeches by St Helena officials also praised the airport construction company, Basil Read, and the company’s island director, Deon de Jager, for keeping the project to schedule, budget and specification. It is reassuring to know that the St Helena airport project is proceeding to its completion without any problems serious enough to cause significant delays. That is good news; it is a government project which is not overrunning on cost or timescale.

Our Government were right to decide to build the airport. Currently, St Helena has an odd sort of society made up of grandparents and grandchildren, with the intermediate generation earning a living off-island because there is next to no economy on St Helena. In 2016, there will be the prospect of a tourism industry that may eventually lead to the island becoming self-supporting economically, which will save the British taxpayer tens of millions of pounds each year.

9 July 2014 : Column GC131

St Helena has many attractions for tourists, some of which we have heard about already. They include Napoleon’s Longwood House, which is a little bit of France on a UK island; 1,100 shipwrecks; spectacular birds and abundant varieties of fish; endemic species of flora—I understand that it is hoped that the St Helena ebony will be made the national flower; the unique St Helena wirebird, which is a kind of plover, which we have already heard about; Jacob’s Ladder, with 699 steps, for those who are a bit fitter than me; Jonathan, the giant tortoise who lives in the grounds of the governor’s residence, Plantation House, who is reputed to be 200 years old and to have met Napoleon; and a golf course with horizontal trees. There is also plenty of history about the appalling slave trade in which the island played a part.

It is vital that we keep it in mind that the airport itself is only the foundation for the hoped-for economic development of St Helena. The goal is to transform St Helena from a small and remote community that is dependent upon grant-in-aid from Her Majesty’s Government to an island which, in time, can become self-sustaining based on a thriving tourism economy. To achieve that goal, the airport is one part of several interrelated and interdependent developments to which my noble friend has already referred to and which are all needed in order for St Helena to achieve at least some degree of economic independence. The airport will, of course, need aeroplanes flying in and taking off. The passengers carried by those aeroplanes will need somewhere to stay. A further aspect directly related to that crucial interdependence between airport, airline and tourism accommodation is the securing of a new shipping service to bring bulk cargo to St Helena. That is needed because the Royal Mail Ship “St Helena”, which the noble Lord and I both travelled on and which has been the lifeline to the island for the past 25 years, is due to be taken out of service after the airport opens.

Each day the airport buildings rise higher from the dust of Prosperous Bay Plain. However, the other vital components remain very much in the early stages of development. The governor of St Helena acknowledged the magnitude of the task ahead in his speech at the ceremony I referred to earlier. He said:

“The more complex, less easy task, is preparing St Helena to be able to benefit from new economic opportunities. But we can do it”.

The acting head of economic development exhorted her listeners,

“to rise to this opportunity and that means all of us working together to grow our economy. To do this we must put business first. This means we must encourage business development, and we must encourage entrepreneurs, both local and overseas”.

With a mere 19 months left before the airport is due to open, progress on developing some parts of the infrastructure for St Helena’s new tourism-based economy have remained virtually static while other parts started to move very late and continue to move slowly. I understand that the first stage of the tendering process for the contract to operate an air service to St Helena will not be completed until 17 July, with the contract scheduled to be awarded in February or March 2015. This gives the successful tenderer no more than one

9 July 2014 : Column GC132

year to successfully complete the job of attracting an adequate number of passengers to a new air service flying to a new and little-known tourism destination.

Beyond that, the technical clearances and ticketing arrangements all have to be resolved at the same time. To attract the number of tourists envisaged, which it is estimated may reach 30,000 a year, there will need to be flights from Europe—the UK and France in particular—as well as from Africa. I hope that the Minister will be able to report significant progress on this, including which airlines have expressed an interest—BA, South African Airways or Atlantic Star, perhaps? When does she anticipate a contract will be signed? The earlier it is signed, the better. This contract-signing could unlock significant inward investment once investors can be assured that flights really are going to arrive.

The other main consideration is accommodation that offers a quality of service for the high-value, low-volume sector of the tourism market that St Helena is aiming to attract. Tourists will need somewhere to stay and so far I understand that no hotel development has started. With completion of the airport just 19 months away, we need to get a move on to build at least one.

Last week at the meeting of the St Helena group, I met two councillors from St Helena—Les Baldwin and Gavin “Eddie Duff” Ellick—who told us that the St Helena Government have set up a company called St Helena Hotel Development Ltd. It would be helpful if the Minister could say something about this. Is the contingency amount for the airport project going to be used to build a hotel? That would make some sense because it could be argued that the hotel is part of the total airport project. In which case, will Basil Read build the hotel? It is already on the island and has a successful track record. Is the Minister able to tell us the situation with Shelco’s plans to build a top of the range eco-hotel? Lastly, I understand that the first stage of the tendering process for the contract for a shipping line for bulk cargo to serve the island after the airport opens will be completed later this month. This contract is scheduled to be awarded in April 2015.

The islanders who are in contact with me are very enthusiastic about the future. I hope the Minister will give credible assurances that Her Majesty’s Government and DfID believe that, as my noble friend Lord Shutt sometimes puts it, “they have all their ducks in a row”.

Finally, many Saints live and work on Ascension and in the Falklands. What progress has been made with the USA over using Ascension as the divert runway for St Helena and on operating a shuttle service between the islands? This would open up the possibility of commercial flights from St Helena and Ascension to the Falklands, thus providing a more complete package for adventurous tourists. In the longer term, have the Government thought about a south Atlantic federation of overseas territories linking St Helena with the Falklands, Ascension and Tristan da Cunha?

6.09 pm

Lord Collins of Highbury (Lab): My Lords, I, too, thank the noble Lord, Lord Shutt, for initiating this debate. Building the airport, which is scheduled for

9 July 2014 : Column GC133

completion in 2016, will be a catalyst for change in the island. It provides great opportunities for growth and jobs, but without proper investment the cost of failure will be high. As is common to small islands, St Helena is dependent on importing even basic items. It has a limited economy focused on less than a handful of sectors, a large public service, and as we have heard, hundreds of Saints have left in the last decades to seek opportunities abroad.

As the noble Lord, Lord Jones, reminded us, there is no doubt that we need to support and develop sustainable enterprise if St Helena is to be weaned off that budget support of around £25 million to £30 million a year. This Government reviewed the postponement of the project when they came into office and concluded that, provided certain conditions were met, the best long-term solution from an economic and financial perspective for both Her Majesty’s Government and St Helena was to construct the airport.

The noble Lord, Lord Shutt, said the airport was on time and on budget, but I would be grateful if the Minister would update the Committee on the progress in meeting the specific conditions, not least on handling the risk of cost and time overruns. One other key condition in that decision was for the St Helena Government to implement the reforms needed to open up the island’s economy to inward investment and increased tourism. The opening of the airport, as we have heard, will clearly have a substantial effect on visitor numbers to St Helena, but in the absence of accurate data it is difficult to forecast precisely what the numbers will be. I know both Her Majesty’s Government and the St Helena Government have commissioned a number of studies into the potential demand for travel following the airport opening.

As we have heard, current tourist accommodation on St Helena is severely limited. Meeting the visitor targets relies on the expansion of island resources and hotel capacity, but the infrastructure required to maintain a vibrant tourist industry is not just reliant on hotel rooms—important as that is. I refer to the comments of the noble Lord, Lord Brooke, about the specific elements of what a successful tourist industry needs to be.

I also refer to Horatio Clare’s excellent article supplied in the Library brief for this debate. He highlighted that without the Caribbean’s beaches or climate, even locals are a little unsure about what a tourist might do on St Helena. One said:

“A mix of walking, fishing, diving, heritage, Napoleon and wildlife”,

which agrees with what the noble Lord, Lord Brooke, said. Even that mixture requires investment, with support to heritage sites and wildlife protection. It also means investment in skills to ensure that the island has people who are qualified to maintain its natural sites of scientific interest, which will be an incredible attraction to the sort of tourists that we seek.

Internet connections are also vital to develop new industries, especially in supporting tourism. As the noble Lord, Lord Shutt, said, the Government are investigating funding and construction options with the aim of completing a hotel around the time of the

9 July 2014 : Column GC134

opening of the airport. We have heard about the development agency that is seeking to work with selected air providers to develop and implement a marketing plan. However, that is all difficult while we do not know who the air supplier is. It will be very difficult to square those things together.

From what I have read in the briefing, it appears that a game of chicken and egg is being played out between the development body and the group of investors with ambitions to build the hotel discussed in this debate. Enterprise St Helena wants the developers to commit to building their hotel so that it can attract airlines. The developers—Shelco—say that the agency should produce an airline before it begins work on the hotel. We have to break that cycle somehow. The Minister wrote at the end of last year that there is an expectation that an agreement will be reached with the airline in early 2015. Like other noble Lords, I would appreciate an update for the Committee on what progress is being made.

As the noble Lord, Lord Jones, said, time is clearly running out on this issue. In January, the Minister reported that passenger numbers for the airport over its first five years would be 14,000, of which 10,200 would be leisure visitors. In May, the noble Lord, Lord Bates, who I am pleased to see here, said that the UK Government expect tourism to be the driver of growth on St Helena once the airport opens. In June, the Minister said in a Written Answer that Enterprise St Helena, the development agency, is leading plans to develop the tourism industry and accommodation. In parallel, ESH is working with local businesses to ensure that the island’s tourist attractions are developed and accredited to international standards. I cannot stress the importance of the points that the noble Lord raised on this particular case.

However, it appears from newspaper reports that there is a little scepticism locally about the projected figures for tourists and the speed at which the necessary infrastructure can be developed. I thank the noble Lord, Lord Shutt, for letting me have sight of the report he referred to from last year’s CPA visit to the island following the general election. For me, an important element of that delegation was that it also embraced representatives from the Isle of Man, Guernsey and Wales. As a point of interest, my own family is from Bermuda so I am familiar with small, remote islands. Some are more beautiful than others, as they say.

When I was at the T&G—the Transport and General Workers’ Union—I also had responsibility for establishing a forum of union membership from the Channel Islands, the Isle of Man and Gibraltar. As I said, such territories have many challenges in common. Sharing experiences is important not only to address the issue of isolation—which is an important factor of development in St Helena—but also for looking at how to develop best practice and new opportunities, and see common ways forward, as we saw from the excellent report produced. I am glad it was produced. It highlighted a range of options, not least not to restrict yourself to tourism as other industries need to be built upon.

To conclude, could there be renewed focus in the department to encourage exchanges on best practice, support and information with other Crown dependencies,

9 July 2014 : Column GC135

specifically—obviously, in the case of St Helena—on the development of tourism and new employment opportunities. Could such exchanges embrace the full range of stakeholders in those societies?

6.19 pm

Baroness Northover (LD): My Lords, I start by thanking my noble friend Lord Shutt for initiating today’s debate and for his keen interest in St Helena. In this debate and through other channels he has rightly been a champion for this project and consistently highlighted the very considerable barriers to the development of one of our most isolated overseas territories. I thank other noble Lords who participated in this debate for their contributions, knowledge and engagement.

As noble Lords noted, we took decisive action to address the constraints of St Helena in November 2011 by approving the construction of an airport that would bring to an end 500 years of isolation. I thank my noble friends Lord Jones and Lord Shutt for their tributes to this decision. For the first time in the island’s history, it will be possible to travel to St Helena in less than a day, opening up this beautiful island to the world and providing opportunities for economic development and the enhancement of the lives of its citizens. I take what the noble Lord, Lord Collins, said about the special beauty of many islands, and it is clear that St Helena has much to offer. It is an unspoilt island of dramatic beauty, biodiversity and heritage, as we have just heard. From its fantastic marine wildlife to its diverse landscapes and unique endemic flora and fauna, the island that hosted Napoleon until his death also played a big part in the emancipation of slaves on the south Atlantic trade route. It is one of the most remote inhabited islands in the world and has the potential to attract visitors from around the world.

My noble friend Lord Shutt clearly appreciates, as do other noble Lords, the scale of the challenge for the island’s small population to turn the opportunity that has been granted to them into a reality. I know that when he visited the island in 2013 as leader of the Commonwealth Parliamentary Association team, he will have seen at first hand the scale of change needed to transform a community that has been in receipt of budgetary assistance from the UK for over 40 years into one that takes control of its own future. I know that his work was greatly appreciated by the new council.

The airport will impact on every aspect of life in St Helena. With construction work on the airport now at its peak, we have already seen a reverse in the population decline which has had such a marked impact on the social and economic life of the Saints, and which my noble friend Lord Jones so graphically made clear. The continual outflow of the most economically active Saints to employment in the Falklands, Ascension and the UK reduced the population from 5,500 in 1995 to around 3,800 at its lowest point. The airport construction project has seen the population rise again to over 4,500, with the creation of more than 350 jobs for Saints. As the noble Lord, Lord Collins, and others have made clear, the challenge will be retain those Saints once the construction has been

9 July 2014 : Column GC136

completed and to harness the skills they bring to help build up St Helena’s long-term economy. DfID is working closely with the St Helena Government to put in place the building blocks that are required to deliver economic growth. The St Helena Government, with funding from DfID, has established Enterprise St Helena, an arm’s-length body tasked with driving private sector-based growth, helping local businesses respond to increased tourism demands, and stimulating local and overseas investment to ensure that the island is ready to capitalise on improved access.

Securing investment in a new and untested market presents significant challenges. While air access is coming soon, currently it still takes three weeks to visit the island, time that few potential inward investors can afford. Nevertheless, progress has been made. A local developer has completed the construction of eight new rooms in Jamestown, and only last week an inward investor announced the development of 20 wood cabin lodges aimed at the big game fishing market, with construction to commence this year. These are small beginnings, but they are significant in the context of St Helena and are likely to encourage others. Enterprise St Helena is also exploring options for the development of a hotel in Jamestown, building on the island’s unique heritage, mentioned by my noble friend Lord Jones, the noble Lord, Lord Collins, and others, by converting Georgian buildings that are currently being used as government offices into a small, 40 to 65-bedroom hotel. The initial design is under way and the St Helena Government are actively pursuing funding options. DfID is working very closely with Enterprise St Helena and the St Helena Government to support their efforts.

I was asked a number of questions about accommodation and I shall provide some fairly rapid updates. There are currently 41 service rooms on the island, 30 with en-suite facilities. In addition to that there are a number of self-catering establishments, which bring the number of rooms up to 113. Many, as the noble Lord, Lord Collins, indicated, may not be at the standard expected by modern travellers at the moment.

I was asked about St Helena Hotel Development Limited. That has been set up to try to kick-start hotel development in Jamestown. Initially it will be wholly owned by the St Helena Government. If plans proceed, shares will also be issued to investment partners. The St Helena Government would look to divest their entire shareholding over time. Clearly, as noble Lords indicated, access, constraints and uncertainties over air services make it challenging to attract private sector investment, but early interest has been shown by two hotel groups. However, both have put plans on hold due to uncertainties in visitor numbers. I have just mentioned the chalets, though, and the plans for Jamestown. DfID itself has no plans to provide funding for hotel development, and it would not be appropriate to use airport contingency funds for a hotel.

I was asked about Shelco. It has revised its proposals to bring forward the development of a 35-room boutique hotel and golf course, with the aim of having it up and running by the time the airport opens. Funding remains an issue, and Basil Read would need to tender for any work that it wanted to undertake.

9 July 2014 : Column GC137

I was asked about the proposed hotel developments in Ladder Hill and Jamestown. Both Protea Jamestown and Mantis Ladder Hill have put their proposals for hotel development on hold for the reasons that I have given, but the St Helena Government are currently exploring funding options for a medium-sized hotel in Jamestown.

As to when it will be possible to book holidays in St Helena and whether that could happen already, it is of course possible to book the accommodation that I have already mentioned through the tourism office. My noble friend is clearly a forward thinker, way beyond anything that I consider, I am afraid, but we note what he says. He always was extremely well organised.

DfID also supports Enterprise St Helena to offer a range of business advice, training grants and small capital investments to local businesses in the sectors of tourism, hospitality, agriculture and fisheries. We are seeking to give St Helena the opportunity to develop further. It cannot be DfID’s role to undertake each role of that development itself. As my noble friend Lord Shutt indicated, there is mutuality here: DfID is investing in the airport and other areas, and we hope to see a necessary response within the island, including in the conservation skills that my noble friend Lord Brooke has mentioned. Obviously we take the points that he makes very seriously.

Securing air services to support tourism and to maintain access for Saints to travel to and from the island is a key requirement for achieving economic development. Twelve potential service providers have registered early interest, and a formal call for expressions of interest was issued on 12 June.

However, the airport will not just bring economic development. Economic growth on St Helena will mean more jobs and prosperity on the island, reuniting families of Saints who have previously had to travel overseas to find employment. It will mean the potential for faster evacuation in medical emergencies, and easier access to education overseas.

My noble friend Lord Shutt pointed to the difficulties of recruiting staff on the island. He is of course right. DfID is providing £2 million this financial year to provide staff to fill short-term specialist positions that cannot be recruited locally. We support long-term positions in key areas on the island.

My noble friend Lord Brooke highlighted the range of work that could productively be carried out on the island. My noble friend and the noble Lord, Lord Collins, asked about a range of skills. Enterprise St Helena, working through the education directorate, has established or is establishing training programmes leading to qualifications covering a wide range of skills. I have a list here. The ones they might be particularly interested in hearing about are building and construction, hospitality and catering, leisure and tourism and environmental conservation. I can go into further detail about them, should the noble Lord, Lord Brooke, in particular, want more on that.

My noble friend Lord Jones asked about a South Atlantic federation. That is very interesting, but it is not currently under consideration. He has lobbed it in, so no doubt people will consider it.

9 July 2014 : Column GC138

I shall answer some specific questions on the airport as rapidly as possible. I was asked whether it will be possible to fly directly from Europe. The length of the runway on St Helena, unless we flatten St Helena, will not support direct flights to Europe. Johannesburg and Cape Town in South Africa are the nearest international hubs with excellent direct links to most European cities. The current tender for air services will look at all options.

Prequalification questionnaires for the air service are due to be submitted on 17 July. More than 12 potential service providers have downloaded the documents—of course, one of them may have been my noble friend Lord Shutt—and currently five have indicated that they will respond. At this stage of the tender process, it would not be appropriate to name airlines. The current target date for signing a contract for air services is March 2015, but that will depend on the nature of the response received. It is intended that air services to St Helena will be operated on a purely commercial basis and that that should be achieved as early as possible. However, it is recognised that this may be challenging in the early years, and air service providers have been invited to put forward proposals for any required research.

The noble Lord, Lord Collins, asked about risk. The fixed-price, lump-sum contract with risk transferred to the contractor is the arrangement. The airport is now 60% complete and to date is on time and to budget. There is also a temporary jetty at Rupert’s Bay.

Wideawake Airfield on Ascension, as noble Lords will know, is a military airport operated by the US to military standards. It would not be possible to meet minimum civil aviation standards, but we expect that the US will agree to the use of Wideawake as a nominated alternative for flight planning and for domestic services between St Helena and Ascension only. We work very closely with the United States on that.

There will be a limited amount of air freight, and alternative arrangements are being made for sea freight. In fact, the St Helena Government have commenced a tender process to secure post-airport shipping to the island and are expecting to receive expressions of interest this Friday, 11 July.

This is a long-term investment trying to ensure that this dependent territory is less dependant in the future. The business case depends upon not rapid development but slow growth over 25 years. I was asked about the value of cross-learning between islands and development. That is absolutely right. The Joint Ministerial Council is an obvious vehicle for putting that into practice, as is the Overseas Territories Consultative Committee.

The airport is key to the economic development of the island. These are challenging times for St Helena, but they also carry the promise of a brighter future made possible by this airport investment. Noble Lords have very effectively laid out the challenges that St Helena faces and how this new opportunity could and should unlock a transformation of the island and its people in the way we all wish to see.

9 July 2014 : Column GC139


Question for Short Debate

6.34 pm

Asked by Baroness Miller of Chilthorne Domer

To ask Her Majesty’s Government what assessment they have made of the role of books in promoting a civilised society.

Baroness Miller of Chilthorne Domer (LD): My Lords, about 450 years ago Michel de Montaigne said:

“When I am attacked by gloomy thoughts, nothing helps me so much as running to my books. They quickly absorb me and banish the clouds from my mind”.

Montaigne was a great example of a man who tried to live what he believed. He was tolerant, even when sorely provoked. He was hospitable to strangers, even though he lived in a time of feuds and war. He was always a prolific writer and reader, even while councillor and legal adviser to parliaments and kings. His essays are as vivid and relevant today as when he wrote them some 450 years ago. His diaries and essays reach out to me across the centuries.

That is the point of books. They can reach across centuries and national borders and promote comprehension of other cultures and other nationalities. Books are increasingly important, being reflective in our age of instant reactions. Books take us beyond ourselves to a wider humanity. I passionately believe that books promote understanding, tolerance and reflective attitudes in societies. Noble Lords will be able to recall many intolerant regimes which have destroyed tablets or scrolls or books as one of their first acts of aggression before turning against their own people or other people. Noble Lords have only to look at the list by Index on Censorship to see that the world is still not free from that sort of tyranny against the written word.

We in the UK have a terrific tradition of free speech and a free press. That freedom has relied on the book trade to nurture authors, their ideas and the books they write. I am sure that other noble Lords today will speak of how important this is to a number of matters, such as education, the role of libraries and other important issues. I will concentrate on the part that the Government can play in keeping that proud tradition of a vibrant, creative book trade.

It is a time of great change in the book trade. Much of that change comes from the move from print to digital. That move offers opportunities, but it also comes with enormous risks. There is a lot to be positive about. The book trade is worth £3 billion a year to the UK, and the quality and range of British writing is recognised around the world. Forty percent of publishing industry revenues are derived from exports, a bigger proportion than in any other country. The UK is the largest e-book market in Europe.

The past 20 years have seen a huge rise in the number of book clubs, literary festivals and creative writing courses. Book prizes highlighting all the new writing are sponsored by imaginative parts of the corporate world, such as Costa, Baileys and of course

9 July 2014 : Column GC140

Man Booker, so the corporate world is playing its part. The National Literacy Trust’s 2013 study of children’s and young people’s reading was sponsored by the international law firm Slaughter and May. The appetite for reading is very healthy but—and this is a big “but”—the money made by authors has fallen by some 30% in the past decade. As a former bookseller, I am really sad to say that the number of independent bookshops in the UK is now fewer than 1,000. That is down by 500 over the past few years. Publishers face a dramatic challenge in the rise of self-publishing.

The book trade as we have known it is metamorphosing. The Government have a part to play in ensuring that the outcome is a continual flowering of creative talent. There are four practical ways in which they can help.

The first is with copyright. As I have said, it is a time of rapid change from print to digital. There are pressures to relax or ignore laws on copyright, which would be a really bad move. Happily, the Government have already made a move in the right direction. In March 2013, the noble Viscount, Lord Younger, announced £150,000 of government money to fund the innovative Copyright Hub, the development and growth of which he said could add £2.2 billion per year to the UK economy by 2020. The hub will support open and competitive markets for copyright licences, present a more efficient online marketplace and cut costs for businesses. Importantly, it will simplify copyright licensing for customers—that includes everyone from the public to schools. Does my noble friend the Minister agree that further disruptive changes to copyright law at both UK and EU levels must be resisted? Can he update us on how the Copyright Hub’s development is progressing?

Secondly, author incomes have fallen in real terms by about 30% in the past 10 years, so fair contracts are incredibly important. Oddly, the Unfair Contract Terms Act 1977 excluded intellectual property. Given how valuable the creative industries are to the UK, surely this is an urgent issue for UK plc as well as for authors. Will the Minister see whether the Consumer Rights Bill offers an opportunity to remove this anomaly and to provide fair contract protection to authors and other IP creators?

The third issue has been on the table since I was a bookseller in the 1970s and the 1980s. It is the threat of removal of zero-rated VAT on books, which is still a live issue. No Government since the Second World War have elected to tax books, but there is now some pressure—I think coming from the European Commission—to end 0% VAT on printed books. Are the Government committed to maintaining zero-rated VAT on print books? What about e-books? They attract a 20% VAT rate, but a couple of other EU countries which really value their books, France and Luxembourg, have unilaterally reduced the rate of VAT on e-books. Will the Government follow their positive policy and reduce VAT on all books, e-books included?

The fourth issue is the rise of Amazon, which has a big share of print sales but almost a monopoly—around 90%—in the e-book market. As we know, it has a disgraceful attitude towards paying its taxes—that is a

9 July 2014 : Column GC141

slightly different issue. Given that Amazon has a 90% share of the e-book market, will the Minister ask the Competition and Markets Authority whether that constitutes a monopoly and, if so, to act accordingly?

There are therefore several practical things that the Government can do, but they need to be aware that they are one of the main drivers in the attitude and framework surrounding books. They are doing lots of positive things; for example, the involvement of the Department for Business, Innovation and Skills with the Creative Industries Strategy, which it has just developed. The Department for Education has certainly created a debate around books, with the slightly negative comments from the Secretary of State about Steinbeck and Harper Lee. He is perhaps a little misguided in thinking that there is not a place for a globalised attitude to literature. Although UK writers should always have a special place in our literature courses, I would hope that our children are studying literature from China to Colombia to Russia.

The Government set an attitude, and perhaps the most negative is that of the right honourable Chris Grayling about books for prisoners. The support for the Howard League for Penal Reform and the English PEN campaign on this issue goes far beyond people who normally worry about prisoners. I very much look forward to hearing the remarks of my noble friend Lord Dholakia with all his experience of rehabilitation, and to what he will say in greater detail about this issue. Indeed, I am grateful to all noble Lords who have chosen to speak today and who will share their perspectives on the critical issue of the role of books in our society.

6.45 pm

Lord Norton of Louth (Con): My Lords, I congratulate my noble friend Lady Miller on raising this important question. I declare an interest as someone who has spent his academic career writing and editing books.

Books are fundamental to a civilised society. They are the means by which knowledge is transmitted in a tangible form. As my noble friend has already indicated, they are at the heart of a free society. As Dame Rebecca West put it:

“God forbid that any book should be banned. The practice is as indefensible as infanticide”.

Good books are a way of nourishing the mind and the human spirit. As Thomas Carlyle said:

“A good book is the purest essence of a human soul”.

The context in which he said it is pertinent: it was in a speech in 1840 in support of the London Library.

Books, then, are crucial to promoting a civilised society. I am not sure that the Government need to devote resources to reach that conclusion. I am much more concerned by what, if anything, flows from that in terms of the actions that the Government should take that they are not already taking. Is not the value of books obvious? Well, I am not sure the value is as obvious as it was. There is a challenge to get people reading books. As my noble friend has already indicated, the internet is both a resource and a threat. It is a resource because of the availability of books through this medium. People can read e-books conveniently when travelling without the need to carry heavy printed

9 July 2014 : Column GC142

books. Sales of e-books are increasing significantly, but the market remains dominated by the printed word.

Although the printed book remains dominant, we are seeing a threat from the internet—or an opportunity. It is a challenge as well because it facilitates the growing demand for instant gratification. It also provides a myriad of distractions. It is a challenge to book reading, which requires the investment of time. The danger is that people will come to rely on digests rather than absorb themselves in the real thing. Given that, what action can Government take? My noble friend has already dealt with copyright, author’s income—I have a particular interest there—and VAT. I shall not repeat her points but merely commend them to the Government. I just want to add a couple of suggestions in the light of our discussion. Book reading should be seen as a necessary component of education policy, but its importance, as my noble friend indicated, should not be seen as confined to the Department for Education. It is as important to BIS and Culture, Media and Sport as it is to education in terms of creating the creative workforce that is essential to our society.

In terms of education policy, there is a notable debate about the content of the national curriculum, but not so much attention is given to the form in which it is delivered. The Government need to be alert that books remain at the heart of any educational establishment. Schools should be encouraged to ring-fence budgets for purchasing books, be that in hard copy or electronically. I am not entering the controversy as to which books should be used. Rather, the emphasis should be on ensuring that students are exposed to a range of texts and encouraged to explore for themselves.

The other suggestion that I have relates to primary education. We know that pupils are disadvantaged by coming from family backgrounds where there is no history of reading and from homes where there are no books. There would be no harm in a campaign to encourage all new parents to expose their children to books, but there should also be leadership by government in encouraging primary schools to place a particular emphasis on book reading and indeed, making books available for young children to explore, if only for the purpose of their seeing them and becoming familiar with them. These suggestions stem from the view that we cannot take the value of books as simply given. We need to ensure that their value is recognised and that we do all we can to encourage young people in particular, of the benefits they will accrue from devoting time to a good book, or better still, a great many good books.

6.49 pm

Lord Parekh (Lab): My Lords, I, too, would like to begin by thanking the noble Baroness, Lady Miller of Chilthorne Domer, for securing this debate. I wonder whether I should declare an interest here by virtue of the fact that I happen to be the author of at least nine or 10 books and the editor of about a dozen. I do not know whether that disqualifies me from speaking about the subject—but I shall, nevertheless, persist.

Books, as the noble Lord, Lord Norton, said, play an indispensable role in creating and sustaining a civilised society. They are the repositories of thought.

9 July 2014 : Column GC143

I do not think we fully appreciate the fact that, compared to television or radio and many other means of communication, books play a unique role. Books are the systematic statement of an individual’s real thinking, spread out over a large number of pages after careful thought. They also force the reader to engage in a dialogue with the author. Unlike television, where the images come and go and I have no time to pause because its immediacy simply overwhelms me, a book allows me to go back and forth, carry an idea with me, sleep on it and return to it a bit later. A book, in other words, is the repository of the dialogue between the reader and the author and, by implication, within the reader himself. Having read the book, the reader wrestles with the ideas in the new world to which the author has introduced him or her, and feels enriched. That is something that a radio or television programme simply cannot do. A book has a certain solidity. It is outside “me”, and therefore a book can be shared collectively in a way that a radio or television programme cannot. A book creates a world. It creates a public; a world in which we all share in common and which binds us into a community.

I say all that boring philosophical stuff not to make out a good case for books but simply to show that a civilisation from which books disappear and in which thoughts are communicated only through images or sounds is a civilisation that will be deeply impoverished. That may partly explain a paradox. We seem to think that as civilisation marches on with more and more technology, the human mind is becoming more sophisticated. The opposite thesis, I think, is more true. Because we are dependent on technology and because our thought processes are conditioned in a certain way, our brain capacity, our cognitive capacity, declines. That is why, in the past 100 years, we have not produced a Shakespeare, a Beethoven or an Einstein. All the greats who shaped our civilisation, who shaped modernity, are conspicuous by their absence.

It needs to be explained why there is progress in every sphere of life and yet, when we come to the fundamentals, the deepest forms of thought, we do not seem to be able to measure up to our ancestors. Forget Plato, forget Aristotle; even a Kant or a Marx would do, but we do not seem to have any. I think that that may have something to do with the fact that the solidity of the process of thinking that a book generates seems increasingly to be absent.

Having said that, I recognise that historically the book cannot remain what it is. Increasingly, it is difficult to define what is a book. Then I saw the title of the debate, and there are two things to be said about it. The first is about the phrase, “civilised society”. Coming from India and being constantly told by our colonial rulers that we are barbarians and uncivilised, the words “civilised society” rang alarm bells in my mind, just as did the word “book” because I was not quite sure what “book” referred to. Is an e-book a book? Is a blog or a series of blogs a book? Increasingly, publishers predict a future in which “physical” books—that word itself is disturbing—as we know them are likely to disappear. That worries me for all kinds of reasons, but that is not what I want to talk about. As of now, we have e-books, which, happily, sell about 80 million,

9 July 2014 : Column GC144

compared to 393 million physical books; they bring in about £320 million, as opposed to £2.3 billion for physical books.

A physical book has an aesthetic appeal. It has what is beautifully called a jacket. We project anthropomorphic categories onto a book. A book has a jacket, a shape and an appearance which an e-book by definition cannot have. That appearance seduces us into reading it. It draws us into its own world. Therefore a book is not merely a repository of thought, it also has an aesthetic quality and is a cultural artefact. My worry is that if we are not careful—or even if we are very careful—there is a danger that books might disappear. Either they will be replaced by blogs or they might not be written at all.

They might not be written for two reasons. First, increasingly in the academic world a book is equal to three or four articles. Why not write an article instead of writing a book? I am told that there is an increasing tendency not to write big books. Secondly, it becomes very difficult for publishers to pay the author because people can read their books on a Kindle or in many other ways; publishers do not make money and they have nothing to give to the author. Increasingly, the recent phenomenon where an author can earn his or her livelihood simply by writing books may not be the case. In that case, why write books? If it cannot be your source of livelihood, only two things can happen. You will write or you will do other things while writing. That is what has happened throughout history. Shakespeare was doing his own things, Charles Dickens was a journalist. Therefore I suggest that we must find some ways in which the love of owning books can be encouraged in our children.

6.56 pm

Lord Dholakia (LD): My Lords, I add my thanks to those offered to my noble friend Lady Miller for securing this debate. Let me consider one issue and one issue alone: prisons and books.

The process of rehabilitation requires a number of initiatives and fundamental to this principle is ensuring that inmates are better prepared to face the outside world upon their release. The most disturbing aspect of the recent developments is the prison policy which bans friends and relatives sending books into prisons for prisoners to read. This change was made last year as part of the Government’s revision of the incentives and earned privileges scheme in prisons. The change means that friends and relatives in the outside world can no longer send small items to prisons, and this includes books. As a result, prisoners can access books only if they borrow them from prison libraries or if they buy them from their prison earnings. Both these options have serious restrictions and limitations. The Chief Inspector of Prisons drew attention to the restrictions on times at which prisoners can gain access to libraries. In addition, prison libraries are run and financed by local authorities. My noble friend made a substantial point that many of the libraries are now closing down, and there is less and less expenditure on books.

It is very difficult for most prisoners to buy books out of their prison earnings. The earnings amount to about £8 or £10 per week, out of which they have to

9 July 2014 : Column GC145

buy their toiletries, stationery, stamps, phone cards to ring home and other items. Do we genuinely expect the prisoner to spend £8 out of £10 to buy a book to read?

There are a number of powerful reasons for reversing this unfortunate ban. First is the damaging effect on the literacy and education of prisoners. The poor rate of literacy among prisoners is well known, as is the research showing that poor reading ability is strongly correlated with difficulty in obtaining jobs on release, and with reoffending. The experience of literacy tutors shows that prisoners are more likely to be motivated to practise and develop their reading ability if they are able to read material on subjects in which they have particular interests. This is where reading material sent in by relatives can play a very important role.

The facts are just as unfortunate for better educated prisoners who want to pursue vocationally linked courses of study which can provide them with a positive alternative to their continuing life of crime. In a recent survey of the incentives and earned privileges scheme published by the Prison Reform Trust, one prisoner said:

“I am about to start a distance learning course. A friend of mine has done all these courses and is fully qualified and was going to send me all his books but we can’t have books sent in anymore”.

The rationale behind preventing prisoners from receiving books which can help them with educational courses is almost baffling, but the rationale behind preventing prisoners receiving books for leisure reading is also doubtful. I shall explain. In many prisons, inmates can spend around 16 hours a day in their cells, and it can be as much as 20 hours a day. Limiting the opportunity for prisoners to read in these circumstances is unreasonably punitive. Moreover, there is a real risk that it will have an adverse effect on prisoners’ mental health and emotional well-being. At a time when the number of suicides in prison last year reached an all-time high, this is a very disturbing development.

The Government have rightly received strong criticism from many quarters for this policy. In the face of this criticism, the Government have belatedly started to advance an argument which says that parcels containing books could be used as a way of smuggling drugs into prisons. This was not part of the original reasoning which the Government put forward when they established that change. It is true that many prisons have a drug problem and most drugs are brought into prisons—and I speak from experience, having been on a board of visitors in my younger days—by visitors, by prisoners returning from temporary release and by a minority of offending prison staff. It is noteworthy that the Prison Officers’ Association—a tough body which is as concerned as anyone about drugs in prisons—has said that attempts to smuggle drugs in parcels are rare and that the systems for security checks on parcels were working well before the ban was introduced. The Government’s argument therefore does not stand.

I hope that the Government will think again and acknowledge that they have made a mistake in prohibiting prisoners from receiving books from their families and friends. It is not too late to reverse this change, which is likely to worsen behaviour in prisons and increase reoffending rates.

9 July 2014 : Column GC146

7.01 pm

The Earl of Clancarty (CB): My Lords, I am grateful to the noble Baroness, Lady Miller, for the opportunity to talk about the importance of books within our culture.

Proper contact with books starts in the home or in schools, and if not in the home then it should certainly begin in schools. My daughter, who is now nine, has been lucky in the two primary schools she has been to—one private, one state—in that they both have decent libraries and librarians, one full time, the other coming in twice a week. But more than this, in both cases the library is located at the geographical centre of each school, not off to one side where it can be lopped off or forgotten about. It is a place through which children have to pass at least twice a day, and for primary school children, in particular, there is then this immediate contact with books. The Libraries All-Party Group chaired by the noble Lord, Lord Tope, in the title of its recent report put together by the Chartered Institute of Library and Information Professionals, calls the library:

“The Beating Heart of the School”,

which is exactly what the library should be.

I am not someone who believes that it should be a choice between the internet, e-books or hard-copy books. They all do different things and should complement each other. The internet is great for focused research on a specific topic, up to a point, but a school library enables a pupil to expand their horizons in important, less predictable ways. For example, a good teacher or librarian will say to a pupil, “You’ve read this—now try this”. The adventurous and browsing elements which good school libraries enable are greatly underrated in the development of a child’s interests. Books can and should be at the very heart of this process.

My child is lucky at her state school but, unhappily, this is not the case everywhere. I find it extraordinary that school libraries are not compulsory at a time when we as a society are so concerned about literacy; the link between school libraries and literacy is one of the things which the Libraries All-Party Group report recommends that the Department for Education thoroughly examine. It is clear that there is a crisis, with threats to the continuing existence of libraries and librarians. For example, the DfE school workforce data for England show a reduction of 280 librarians within a two-year period. The report also cites the 2010 UK national survey of school libraries, showing a 7% fall over three years in the number of primary school libraries with library space. The same survey showed that while relatively few primary schools had a designated school librarian, 90% of them accessed support via the schools library services. However, because that is often a traded service to schools, some schools are choosing to no longer use those services when money is tight.

A major problem is the lack of comprehensive data about the number of school libraries and librarians. One of the other recommendations that the report makes is that the DfE should ensure that that information becomes part of the annual data submission for schools.

9 July 2014 : Column GC147

Nevertheless, the current evidence, however patchy and anecdotal, suggests that this situation is continuing to worsen.

A good school library should be represented in all areas: fiction, non-fiction, arts and sciences. Art books have traditionally had a special place in school libraries, in part because of their visual immediacy, and art teachers continue to use books as a vital resource in classes. This raises another issue: libraries need to be kept up to date. In the case of art, this means purchasing catalogues of new exhibitions. As the National Society for Education in Art and Design told me this week, “It is almost a given that teachers will supply their own up-to-date art books in schools”. Indeed, one teacher told me that she has spent more than £500 a year on visual resources, such as books, DVDs, posters and art magazines. It is admirable that art teachers are so passionate about their subject and their pupils’ engagement to make these outlays—if, of course, they can afford to do so— but it is a sad reflection on the amount and system of school funding that libraries or departments cannot purchase these books that can then be made available to pupils in the long term.

Every pupil at primary and secondary school level deserves access to a good school library. I hope that the Government will take steps to reverse the current trend and ensure that this becomes a reality.

7.06 pm

Lord Addington (LD): My Lords, when I saw this debate going down, I thought that it would be a good idea to make a speech. Indeed, one of my noble friends said, “Why don’t you speak about books, you can talk about dyslexia again”. Looking at this, I realised that my attitude towards books is not quite the same as other people’s because I am severely dyslexic. I have had access to much of the heavier, deep literature of the 19th century in an audio format. What is a book? I had a think about it. It is not a piece of paper but a pile of knowledge either edited or put together in a whole. That is my attitude towards it.

The audiobook fulfils that function of knowledge. True, having someone who reads it well is a help but it still fulfils that function. It brings things together and allows you access to knowledge. Whether or not we like it, in our society there is a great deal of snobbery about books. Anybody who does not have access to a book or who does not read is regarded as below the salt intellectually. Regardless of whether or not you understand the words that you read, reading them is regarded as a great thing.

The new format, the audio component, has been incredibly popular for a long time. The growth of the audiobook started in the 1970s and many of us have lots of audiobooks that we are now told are fit only for recycling because they are on tape—maybe that is just in my household. But the idea that a book can be accessed in various formats is one that we should take care of.

On the subject of libraries, the huge amount of effort that goes into them to make sure that literature is in audio format—in most libraries—is something, in the accessing of literature, to which I believe that the Government should pay attention. The link between

9 July 2014 : Column GC148

being literate and accessing literature is no longer absolute. You do not need the intermediary of another person to read to you; the capacity to get at it is there. In our society, that is very important. It is an asset to everything else that you do.

On emerging digital technology, the idea that you can access any book via these means is now a reality. It affects many of the ways in which we have been assisting people who have learning difficulties or sensory impairment. I hope that the construction and control of the digital world, and the interrelated way in which we reward people who produce books, are brought into the whole discussion about books. If there is intellectual snobbery around books, it is because this is how we have conveyed ideas, particularly complicated ones, to our society.

I hope that when my noble friend replies he pays some attention to this and shows us how we are going to make progress. We should not ignore that part of it, and my noble friend did not do so when she started this. She said that a book in a digital format is probably easier to access straight away than one in written format—you can still do it but digital is easier. If we make sure that is worked in, we will expand the basis of ideas, discussion and thought. We may even be able to remove the exclusion of those who have bad technical reading skills.

Literacy may be a value to society, but the idea of study, knowledge and the interaction of knowledge is more valuable to society again. Looking at the way new technology works, we can expand the basis of those who can get into a book—that lovely package of ideas and thoughts, good or bad, well done or not. We now have the capacity within society to make sure everyone can access this. I hope that when my noble friend replies he will have given some thought to how audiobooks and e-books can be made more accessible to society as a whole.

Lord Bilimoria (CB): My Lords—

Lord Popat (Con): If you cannot be here at the beginning of the debate, you cannot speak in this gap period. My apologies.

7.11 pm

Baroness Jones of Whitchurch (Lab): My Lords, I am very grateful to the noble Baroness, Lady Miller, for tabling this debate and for giving us the opportunity for a very thoughtful and passionate discussion about an issue which we all take very much to heart. Unlike some of the debates that I have to speak on, I very much enjoyed doing the preparation for this one. Noble Lords have identified so many ways in which books can be life-changing. They can inspire, educate, amuse, challenge and elevate. For me, reading books is special precisely because it is a one-to-one personal thing and cannot be replicated. What you take out of a book is very different from another person reading the same one. I cannot imagine a world without books.

In the short time available, I will mention three threats which will affect the centrality of books in our lives. First, nothing epitomises better our understanding

9 July 2014 : Column GC149

of the importance of books in society than our fantastic library services, where access to books is free. We should be proud of the fact that our library network has flourished for more than 150 years and remains unrivalled in the world. This free access has been embraced by working class movements from the moment that the printed word became mainstream and I am very pleased that, for example, the Working Class Movement Library in Manchester is still going strong. Books became vehicles for big ideas and social visions as well as new ways of thinking about truth and beauty. I can still remember the thrill of getting my first library card as a child and the excitement of the weekly visits to choose a new book. The thrill of having and holding that book felt like a rite of passage into a secret adult world.

It is, therefore, very frustrating to hear the extent to which the service is under threat at the moment. UNISON has estimated that nearly 500 libraries are being closed, privatised or run by volunteers on a reduced service. The truth is that once that service is closed we will not get it back and another celebrated feature of our cultural heritage will be gone for good. What steps is DCMS taking to ensure that a comprehensive network of libraries is retained so that future generations can benefit from access to the civilising power of books in the way that we have done?

Secondly, the noble Baroness, Lady Miller, talked of all the positive developments in book reading but, sadly, the size of the printed book market slumped in 2013 to an 11-year low in terms of both volume and value. As she pointed out, many much loved independent bookshops are closing around the country, with almost 550 going out of business in the past 10 years. This has to be a concern. We know of at least two main reasons for this: first, as noble Lords have pointed out, the domination of online purchases through Amazon; and, secondly, the growth of the digital e-book market in which Amazon also has a major hand via the Kindle. It already controls 41% of all book sales in the UK.

I do not pretend that there are any easy answers to these trends but there have to be deep concerns about intellectual property and diversity when a single operator can become dominant in the market in this way. Already, there are worrying signals. It is alleged that, in renegotiating its contract with independent UK publishers, Amazon is now insisting on the right to print books itself if publishers fail to provide adequate stock. Can the Minister say whether any discussions are taking place to protect us from exploitation by this market dominance? As I think the noble Baroness said, should not this issue be referred to the competition authorities? Would it benefit from a Europe-wide investigation?